Which industries would you use EV/EBITDA and which would you use P/E?
Hey everyone,
Been trying to understand the mechanisms behind choosing either a EV multiple or an equity multiple.
Was wondering if anyone could run me down which industries would they use EV/EBITDA for and which would they use P/E for, and the reasons why?
For example, oil & gas companies. I feel like because they are so levered EV/EBITDA should be used, but at the same time that doesn't take into account their interest payments and high D&A costs.
Any thoughts?
Take my answer as a grain of salt as I'm an intern, but I believe you'd use EV/EBITDA multiples for your more traditional widget companies. Then you'd use P/E multiples for companies such as banks and insurers since interest (income and expenses) are VERY significant cash flows, so they are quite capital structure reliant.
For FIGs you straight cant use EBITDA, as they make money off borrowing and lending (interests) and are not subject to D&A. But I am keen to know for other non FIG industries.
Depends on the company in FIG, if it's like Spec Fin/ Fin Tech/ Asset Managers you can use EV/EBITDA iirc
Otherwise I think the difference between P/E and EV/EBITDA is prob just driven off of if debt is a significant part of the capital structure in the industry
Was responding to the above, hence talking about banks/insurers.
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