Module II· Multiples & Sector SpecificsIntermediate
Question
How do you convert between different multiples (e.g. EV/EBITDA to P/E)?
Answer
Mechanics
Mathematical bridges between multiples:
- EV/EBITDA → EV/EBIT: EV/EBIT = (EV/EBITDA) × (EBITDA / EBIT).
- EV/EBIT → P/E: more complex because of the tax shield and net debt. In practice, via a reverse calculation (EV → equity value → P/E).
Deep diveShow more details
Example 1 (EV/EBITDA → EV/EBIT)
```
EV/EBITDA = 9x
EBITDA / EBIT = 1.4
EV/EBIT = 9 × 1.4 = 12.6x
```
Example 2 (EV/EBITDA → P/E)
```
EV/EBITDA = 9x → EV
EV − Net Debt → Equity Value
Equity Value / Net Income → P/E
```
Sector rule of thumb
EV/EBITDA of 8–10x corresponds to a P/E of 14–18x at a normal capital structure.
Pitch tip
Multiple conversion can expose valuation inconsistencies — if the comp set's median EV/EBITDA is 9x but the implied P/E is 25x, something is off with the capital structure.