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Module II· EV-Equity BridgeBasic
Question

Why is EV more useful than Equity Value for multiple comparisons?

Answer
Mechanics

EV is capital-structure-neutral. Two identical businesses with different leverage have:

  • the same EV
  • a different Equity Value (more debt − less equity)
Consequence for multiples
  • EV/EBITDA stays comparable
  • P/E varies with leverage (higher leverage − higher interest − lower net income − lower P/E at the same EV)
Pitch tip

'EV-based multiples are the market standard for comps because they neutralize capital-structure differences.'

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