The multiples that matter
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
7 min read · updated July 2, 2026
A multiple is a shortcut. Instead of building a full model, you take a company's value and divide it by one number that stands in for its earning power. The whole game is matching the right value to the right number. Get that pairing wrong and the multiple is nonsense, even if the arithmetic is clean.
Here's the one rule that runs the entire topic: value on top must be claimed by the same investors as the metric on the bottom. That's it. Everything below is just working out who has a claim on what.
The two families of multiples
There are two kinds of multiples, and they answer to two different owners of the business.
Enterprise value (EV) multiples put enterprise value on top. Enterprise value is the price of the whole operating business, the cost to buy it free of its financing choices. It belongs to everyone who funds the company: debt holders and equity holders together. So the metric on the bottom has to be a number those same people all share, which means it must sit above interest expense on the income statement. Interest is what gets paid to lenders. If you haven't paid it yet, the money still belongs to the whole capital pool.
Equity value multiples put equity value on top, the piece owned only by shareholders. So the bottom metric has to be a number that belongs only to shareholders, which means it sits below interest, after the lenders have been paid.
That single distinction, above the interest line or below it, decides which multiple you're allowed to build.
| Multiple | Numerator | Denominator | Sits where vs. interest |
|---|---|---|---|
| EV / Revenue | Enterprise value | Revenue | Above (top of the P&L) |
| EV / EBITDA | Enterprise value | EBITDA | Above |
| EV / EBIT | Enterprise value | EBIT | Above |
| P / E | Equity value (share price) | Net income / EPS | Below |
Revenue, EBITDA, and EBIT are all struck before interest. Net income is struck after it. That's why the first three pair with EV and the last one pairs with equity value.
Pre-interest metric goes with enterprise value. Post-interest metric goes with equity value. If you can locate the metric on the income statement relative to interest expense, you already know which value belongs on top.
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Frequently asked
- Why do you use EV/EBITDA instead of P/E?
- EV/EBITDA is capital-structure neutral, so you can compare a debt-heavy company to a debt-free one on the same axis. EBITDA is struck before interest and enterprise value ignores the financing mix, so both sides of the ratio are blind to leverage. P/E is not: interest expense drags net income down, so adding debt moves the P/E even when operations are identical.
- Why can't you pair enterprise value with net income?
- Because the value on top must be claimed by the same investors as the metric on the bottom. Net income sits after interest, so it belongs only to shareholders, but enterprise value belongs to debt and equity holders together. Dividing a whole-company value by a shareholders-only number gives a ratio that means nothing. EV/net income is the classic tell.
- When should you use EV/EBIT instead of EV/EBITDA?
- Prefer EV/EBIT when capital intensity genuinely differs between companies. EBITDA flatters a business that spends heavily on equipment because it ignores depreciation; EBIT charges the company for using up its assets. A CFO choosing between a capex-heavy and capex-light target cares about that difference, so cross-check with EV/EBIT.
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