MSFT's valuation multiples right now
MSFT — P/E, EV/EBITDA, P/B, Revenue Growth. Open MSFT on the Ledge to see current values.
What each valuation multiple is best for
| Multiple | Numerator | Best For | Weakness |
|---|---|---|---|
| EV/EBITDA | Enterprise Value | Most industries — neutralizes capital structure | Ignores capex differences |
| P/E | Market Cap (Price) | Profitable, stable companies | Distorted by leverage, taxes, one-time items |
| EV/Revenue | Enterprise Value | High-growth or unprofitable companies | Ignores profitability entirely |
| P/FCF | Market Cap (Price) | Capital-light businesses | Volatile for capex-heavy companies |
| EV/EBIT | Enterprise Value | Capital-intensive industries | Affected by depreciation policies |
Why EV multiples beat P/E
EV-based multiples (EV/EBITDA, EV/Revenue) are generally superior to price-based multiples (P/E) because they account for differences in capital structure. A company can look cheap on P/E simply because it’s loaded with debt. Remember that EV-based comps hand you an ENTERPRISE value; getting to a per-share number goes through the EV-to-equity bridge taught in The DCF Framework: From Theory to Model in the DCF path.
Which multiple each sector prefers
| Sector | Primary Multiple | Why |
|---|---|---|
| Tech/SaaS | EV/Revenue, EV/EBITDA | Many pre-profit; revenue growth is key |
| Banks | P/TBV (Price to Tangible Book) | Assets are mostly financial instruments |
| REITs | P/FFO (Funds from Operations) | FFO adjusts for non-cash depreciation |
| Retail | EV/EBITDA, EV/EBITDAR | EBITDAR adjusts for lease differences |
| Oil & Gas | EV/EBITDAX | Adjusts for exploration expense |
Calculate and compare a company's multiples
Look up a company in Fundamentals and calculate its EV/EBITDA, P/E, and EV/Revenue. Then compare to 2–3 peers. Which multiple shows the most consistency across the peer group?
When EV/EBITDA and P/E disagree
A company trades at 8x EV/EBITDA (cheap vs. 12x peer median) but 25x P/E (expensive vs. 18x peers). What explains the divergence?
Pick the meaningful, consistent multiple
Choosing the right multiple for tech peers
You're comparing 5 tech companies. Valuation multiples: EV/EBITDA 12-18x, EV/Revenue 4-9x, P/E 20-35x. Which is the RIGHT multiple to use?
Check your understanding
Sit with the ideas.
A peer group has median EV/EBITDA of 14x. Your target company has EBITDA of $500M but grows at 20% vs. peers at 10%. What EV range is reasonable?
Why: