I am choosing EBITDA multiple over the other valuation method for valuation but when comparing companies, or valuing private companies, myself, I think the latter method is more suitable. So my core rationale is that while EBITDA looks at the operating performance of the business, it is a much less impactful measure of differences in the capital structure, tax policies, or accounting treatments.
This facilitates comparing companies in the same industry and minimizes distortion that would occur when net income-based metrics like P/E are compared. All that said, I don’t think the P/E method is useless. It captures what really matters to shareholders — earnings after tax — but it can be misleading in company types with different debt levels, and in accounting profits that have been more volatile.
Which is why I view EBITDA multiples as a better approach for starting valuation with, and P/E as an add-on rather than the main driver to valuation. I wonder if others prefer using P/E ratio for its simplicity and focus on the shareholder or their practical outlook, and if they find EBITDA more realistic in real-world valuations too.
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