Why can't you use Equity Value / EBITDA?

A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

EBITDA is a pre-debt metric – it's available to both equity and debt holders. Equity Value only represents the equity holders' claim. Pairing them creates a mismatch: the numerator excludes debt, but the denominator is available to debt holders too. You must use EV/EBITDA or P/E – never cross them.

WHAT INTERVIEWERS LISTEN FOR

✓EBITDA is pre-debt metric
✓Equity Value excludes debt
✓Mismatch between numerator and denominator
✓Use EV/EBITDA or P/E instead

COMMON MISTAKES

✗Using Equity Value with EBITDA
✗Thinking EBITDA is only for equity
✗Confusing Enterprise Value with Equity Value

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