First entry on the forum so bear with me... ( also, happy new year to all )
I recently interviewed for an internship position for a boutique in London, thought it was going really well, got along with the analysts who were interviewing , etc but had one question that kind of threw me off a bit.
P/E vs EV/EBITDA multiples, which one is usually higher?
I obviously knew the differences and advantages vs disadvantages but no clue on a "right answer" for which one would be highest. So ended up just guessing P/E. then the interviewer kind of guided me to the difference that EV is for all investors and P/E refers to just equity.
After some thinking when walking home, I still couldn't figure out how that was relevant.
So all multiples based on EV are quite easy to compare, the further down the P/L you go, the more it's influenced by profitability. Since P/E is based on net profit, this is one of the factors influencing the difference so I could say that the multiple would be higher since normally there'd be less net profit in comparison to EBITDA, right?
However, it's not based on EV, but rather on the price per share, which is ultimately down to market sentiment. (that's one) This would represent the Equity part of the EV formula, which is most often lower than EV as well. So in relation to EV/ EBITDA, both P and E would be lower. (which would be a second consideration)
I know it's a LOT but I was hoping your brilliant minds could help a newbie out here on giving some feedback on my considerations and potentially guiding me in my thinking a bit.