Question
You are tasked with doing Relative Valuation of a profitable business. You chose a set of 8 publicly traded comps and computed their EV/EBITDA and
You are tasked with doing Relative Valuation of a profitable business. You chose a set of 8 publicly traded comps and computed their EV/EBITDA and P/E multiples. Which of the following are true?
I) If there is significantly less dispersion of multiples across comps using P/E ratios compared to EV/EBITDA ratios, you should use P/E ratios to do your Relative valuation.
II) One reason why there might be less dispersion of multiples across EV/EBITDA ratios compared to P/E ratios is that EV/EBITDA automatically control for risk differences arising from leveraging differences, whereas P/E ratios do not.
III) For a given business, EV/EBITDA multiples are always smaller than P/E multiples.
Only I. | ||
Only II. | ||
I and II. | ||
Only III. | ||
I and III. | ||
II and III. | ||
All of them. | ||
None. |
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