Price-to-Earnings vs EV/EBITDA

P/E sits at the bottom of the income statement: net income is after interest expense and after taxes, so the P/E ratio reflects the company's specific capital structure and tax situation. EV/EBITDA sits higher up: EBITDA is before interest, taxes, depreciation, and amortization, and enterprise value covers both debt and equity holders — so the multiple isolates the operating performance of the business regardless of how it's financed. A simple rule: numerator and denominator must match. P/E pairs an equity-value numerator (price) with an equity-level denominator (net income); EV/EBITDA pairs an enterprise-value numerator with a pre-financing denominator. Mixing them — e.g., EV/Net Income — is wrong because EV belongs to all capital providers but net income belongs only to equity.

Two companies with identical operations but different debt loads will show different P/E ratios — the levered one has higher interest expense and lower net income, distorting the multiple — but the same EV/EBITDA, because EBITDA is measured before interest and EV adds the debt back. This is exactly why bankers default to EV/EBITDA for comparing companies across a sector: it neutralizes financing choices and lets you compare the underlying businesses. P/E is more useful when you specifically care about returns to shareholders, in financial-sector valuation (where EBITDA is meaningless because interest is operating revenue), or for a quick equity-investor lens.

Use EV/EBITDA for cross-company operational comparison, M&A and LBO analysis (the acquirer assumes the whole capital structure), and capital-intensive or differently-levered sectors. Use P/E for financial institutions (banks, insurers), for stable companies where net income is meaningful, and when assessing the equity story directly. In practice you show both. EV/EBITDA's weakness is that it ignores capex and D&A (so it flatters capital-heavy firms); P/E's weakness is that it's distorted by leverage, one-time items, and non-cash tax effects, and it can't be used when earnings are negative.