Got potential interview questions on multiples that I'm confused about. Would appreciate the help! Why would you use P/E multiples over EV based multiples like the EBITDA, EBIT, or Revenue multiple? Are higher multiples better or worse or is there like a range at which its considered a good multiple? ( for P/E and EV based multiples)

PE multiples are better used for equity valuations with stock analysis, and EV/EBITDA is better used for company valuation with M&A. It is still recommended to weigh the multiples of both to value a company. “The P/E ratio does not reveal a full picture, and it is most useful when comparing only companies within the same industry or comparing companies against the general market. The EV/EBITDA ratio helps to allay some of the P/E ratio's downfalls and is a financial metric that measures the return a company makes on its capital investments.

Multiples Question

Got potential interview questions on multiples that I'm confused about. Would appreciate the help!

Why would you use P/E multiples over EV based multiples like the EBITDA, EBIT, or Revenue multiple?
Are higher multiples better or worse or is there like a range at which its considered a good multiple? ( for P/E and EV based multiples)

3 Comments

Sinner G

PE

3y

Google it, this is a BIWS 400 guide question and if you're interviewing, you should review that.

Depends on the context of what this question is getting it. Multiples are just multiples, there’s no inherent “better or worse” without asking about a specific situation, like “is it better or worse for a buyer?” A buyer would rather pay a lower multiple, seller would rather receive higher. Higher multiple usually to reflect higher growth, margins, or other attractive characteristics

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Authored by: Certified Private Equity Professional - 1st Year AssociateCertified Private Equity Pro

beltran33

?

3y

I've reviewed the BIWS thoroughly but I just don't understand the situations where a P/E multiple is used over an enterprise value multiple or vice versa.

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mcblin

IB

2y

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