Hi all,
Currently work in audit/assurance and aspire to go into banking at some point in the future. When I had a banking interview at one of the big 5 in Canada, I got asked about certain 'multiples' (not typical ones like EV/EBITDA or P/E, PEG...) and why these don't necessarily make sense. Could anyone go through a few examples of say, a proposed multiple and why it wouldn't 'make sense' to use it?
Thanks.
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Without knowing the specific multiple you were asked, I'd guess that it has to do with mixing numerators and denominators that don't suit each other. For example, TEV/Net Income doesn't make sense because TEV is a measure of value to all shareholders (debt and equity), while Net Income is just the return to equity holders.
If a company is capital intensive and/or highly levered it may not make sense to look at a P/E multiple given depressed net income, and either an EBITDA or cash flow multiple would be more appropriate. Common in energy.
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