EV/EBITDA Vs PE And Other Valuation Questions

EV/EBITDA Vs PE And Other Valuation Questions
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I have a couple of valuation questions that I have been wrestling with recently.  I would love to hear your take. First, do you ever use a PE ratio for valuation?  I have always used a EV to EBIT or something ratio whether pre-tax or after-tax.  (I have an idea of the multiples that interest me in both cases.)  Sometimes I come across something that has a low PE but not so low EV/EBIT (EV/EBITDA Vs PE).  I think this is when the company has financial leverage and is paying an interest rate substantially below the earnings yield.  If it’s a high quality business and the leverage does not harm the company is it sometimes better to use a PE?


John Chew on EV/EBITDA Vs PE: No, I would use EV (enterprise value which includes net debt) rather than “P” or market cap because debt is part of the price that you pay. Also, look at the terms and conditions of the debt. Note the quality as well as the quantity of the debt. Bank debt is more onerous than say company-issued bonds.