How to value a company with high debt

Interesting question. EV/EBITDA is a capital structure 'neutral' multiple, as EBITDA is before interest, so that wouldn't be the best indicator for a heavily indebted company. That said, the company's added risk from their debt would logically be priced in to their value, so I don't believe this assumption really holds up. P/E would give you the cleanest look at after-interest earnings (and is more commonly used in highly leveraged industries), so that may be a more appropriate answer. However, P/E has its own short comings, and is more vulnerable to earnings manipulation (vs the clean assessment of EBITDA). The right answer is probably a mix of multiples, but those are some points to consider. Curious what others think?

High debt implies high credit risk. Naturally you'd place a discount to the value vs. comps with more normal or average cap structure. High debt would also tie up most of the company's cash flow for debt service, instead of investing in capex to drive growth. This would also warrant a discount vs. comps.

Depends on what industry it is and its growth profile. industry: usually placing debt requires tangible PP&E/hard asset collateral bases. growth: if the debt was being used for capex/growth then it makes sense. If it was just refinancing of existing debt over and over again, then bad idea. also need to consider that more debt implies less leverage to put on to boost levered equity returns. usually you'd be hesitant as a LBO investor to look into a SaaS/soft-tech company with >10% debt but you'd consider looking at some heavy manufacturing/industrials with higher debt.