Hey future banker,

Two companies look identical on paper. Same industry, same EV/EBITDA. But one trades at a premium. What gives?

Company A and Company B have identical EV/EBITDA. But, Company A has a higher P/E multiple. Why might this happen?

Let me break it down simply:

Think of EV/EBITDA as judging two companies' operating performance while P/E focuses on what's left for shareholders. Like comparing two cars' engines (EV/EBITDA) versus what's in your pocket after all expenses (P/E).

The key lies in what happens between EBITDA and net income. Different capital structures, tax situations, or depreciation policies can create this gap.

High debt is often the culprit. If Company A has less debt than Company B, more EBITDA flows to shareholders rather than creditors. Less interest expense means higher earnings, which can justify that higher P/E.

Tax rates matter too. Company A might operate in a lower-tax country. Same EBITDA, but more earnings survive the tax hit - leading to a higher P/E while EV/EBITDA stays identical.

Depreciation differences count. Maybe Company B has newer assets with higher depreciation charges. This hits earnings (affecting P/E) but not EBITDA (leaving EV/EBITDA unchanged).

Remember: When multiples tell different stories, look at what's happening between them. Capital structure, taxes, and accounting policies can create gaps between operating performance and shareholder earnings.

Talk soon,

Sam