Valuation Multiples: EV/Revenue, EV/EBITDA, P/E and When to Use Each
Valuation multiples compare a company's value to a financial metric. They're a quick way to estimate value.
Common Multiples
EV/Revenue
Enterprise Value / Revenue
Best for: Early-stage companies, high growth
EV/EBITDA
Enterprise Value / EBITDA
Best for: Comparing companies with different capital structures
P/E (Price to Earnings)
Market Cap / Net Income
Best for: Mature, profitable companies
P/B (Price to Book)
Market Cap / Book Value
Best for: Financial institutions, asset-heavy businesses
When to Use Each
| Multiple | Use When |
|---|---|
| EV/Revenue | Company has no earnings |
| EV/EBITDA | Comparing across capital structures |
| P/E | Company is profitable |
| P/B | Assets matter (banks, RE) |
Pros and Cons
Pros:
- Quick and easy
- Comparables available
- Useful for initial estimate
Cons:
- Dependent on comparables
- Doesn't capture growth
- Can be misleading
