Company A has a higher EV/EBITDA than company B, but company B has a higher P/E than company A, what are the possible explanations?
| +327 | Which Offer to Accept: UBS Analyst Role or Part Time Cashier at the Local Taco Bell | 41 | 3h |
| +249 | AI is insane | 32 | 3h |
| +227 | I Snuck Into UBS Office And Took A Shit On The Floor | 22 | 2h |
| +186 | Useless associates | 29 | 3h |
| +174 | How do you manage nerves in IB technical interviews? | 16 | 3h |
| +167 | Differences in Restructuring Teams? | 31 | 10h |
| +154 | TPH V.S. Mizuho [HOU] | 22 | 9h |
| +149 | GF is an IB Analyst at a top BB, hates it, what exit options does she have? | 26 | 6h |
| +141 | Roku-Fox Deal - UBS Misses Out on yet another deals after years chasing this deal | 24 | 3h |
| +139 | Shame on you Evercore - SA 28 | 37 | 3h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Look at how to calculate Ebitda vs NI and you'll find your answer
I'm not 100% sure, but I think Company A has better gross and operating margins than Company B giving it a higher EBITDA multiple but company B has less depreciation and/or interest expenses relatively, giving it a higher P/E.
Assuming stock price and equity value are the same for both: Company A has weaker margins (gross, operating) and therefore lower EBIT, or a higher net debt balance, preferred securities outstanding, noncontrolling interests, etc or they have lower D&A expenses.
Company B has a weaker net margin; higher net interest expense (higher cost of debt) and therefore lower net income
There are a bunch of moving parts but I think these are some possible explanations
should B have a higher depreciation and/or interest expense, which makes its earnings smaller (the smaller the value of denominator is, the higher the value of the multiple is)?
best answer: capital structure
leverage
I agree with BBwayne- think capital structure- is P/E neutral? What changes this multiple? Now ask yourself the same question for EV/EBITDA? I have a similar question for you once you wrap your head around this one. If CO A and CO B have the same net income, but A is levered and B is not which one has a higher valuation? Why?
I think it depends on the level of debt you take on, up to a certain point, taking on more debt will give you a lower wacc, therefore increasing the EV. However, beyond that point, more debt also result in an increase in Re, which actually increases overall wacc, and leads to a lower EV. Is my reasoning correct?
Leverage can either increase or decrease P/E multiples depending on its net gain. Assuming same risk profile, CO B will have higher P/E. Leverage introduces interest expense but also increases NOPAT. You're left with the tax shield.
Company A has higher net debt (relative to B) and/or Company B has higher D&A, interest, and/or tax expenses (relative to A).
how can you tell co A has a higher net debt? Thx soo much！
Higher net debt = higher EV = higher EV/EBITDA all else being equal
this is the best/only answer
High P/E = expensive investment, which means investors who already have invested are willing to pay more because they feel that the company will grow in the future giving them a profit on their investment.
High EV/EBITDA = Similar concept. However instead of 'Price' you have EV which includes debt and is a metric of the whole company, not just its equity.
So basically Company A probably has a larger Enterprise Value and Company B has less. However Company B could be a smaller company with much more anticipated growth, thus why investors are paying more for it. P/E is more subjective than EV multiples.
There are many, many answers to this question
Higher P/E= Higher expected growth
B has more debt.
Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt Debt debt debt debt
Here's my take:
If A has a higher EV/EBITDA ratio than B -> A has higher debt -> higher interest payments.
Since earnings is EBITDA - D&A - Interest - Tax, if EBITDA is equal, B's interest payments are lower and they both share the same corporate tax rate, it should be that B has higher D&A.
Of course, if those assumptions are wrong then there are plenty of other explanations.
Et delectus et explicabo nihil perferendis similique aut doloribus. Aut adipisci est voluptas ut ad et placeat. Occaecati laborum quod harum omnis et odit. Id dolorem et consequatur voluptate voluptatum iste. In quisquam vel et fugiat fugiat animi in. Quo omnis sit similique et laborum.
Quia aut doloribus neque. Dolore consequatur architecto ut. Unde aut temporibus modi qui aperiam ipsa. Omnis et voluptates dolor architecto. Quaerat et minus corrupti quo ex quae cumque eum. Cumque aliquid quaerat modi aut dignissimos cupiditate.
Nemo perspiciatis debitis et incidunt voluptatem quis dolores. Ut repudiandae officia natus aut error. Facere omnis quae eaque maiores.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...