Hi all
I understand the difference between these two valuation metrics…
however, how would others explain companies with a low PE (say sub 10 for example) but a high EV/EBITDA multiple (say 20+).
Feels contradictory
any thoughts?
The EV/EBITDA measure accounts for net cash or net debt in a way that a simple PER does not. The simplest definition of enterprise value (EV) is market cap + debt - cash*. So a highly indebted company could have a low PER and a high EV/EBITDA.
* other considerations such as unfounded pension liabilities and minority interests should also be considered.
