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Two common multiples that measure slightly different things — the right choice depends on the capital structure of the company you're examining.
P/E compares price to net income (after interest and taxes) — sensitive to a company's capital structure. EV/EBITDA compares enterprise value (including debt) to earnings before interest, taxes, depreciation, and amortization — more neutral to capital structure, making it a better comparison tool between companies with very different debt levels.
When comparing companies in the same industry with very different leverage (one with a lot of debt, another with almost none) — P/E would distort the comparison because interest expense differs materially, while EV/EBITDA compares 'raw' operating profitability before that effect.
For companies with similar capital structure within the same industry, or when you want to measure what shareholders actually receive (after all expenses, including interest and taxes), P/E gives a more direct and less technical picture.
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This research is intended for general educational purposes only, does not constitute investment advice, and is not a prediction. Full details on the disclaimer page.