Session 1 of 26 Part I: Valuation Foundations — Chapter 1 of 18
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Part I: Valuation Foundations Chapter 1 of 18 Session 1

Introduction to Corporate Valuation

Understanding what value means, how it is measured, and what drives it — the foundation of every investment decision.

Learning Objectives

🔎 Opening Challenge — The Mystery of Two Identical Companies

Company A and Company B are in the same industry. Both reported Rs. 10,000 crore in revenue and Rs. 2,000 crore in profit last year. Yet Company A's market value is Rs. 25,000 crore while Company B's market value is Rs. 80,000 crore.
Your Task: Turn to a partner and discuss — what could explain the gap? List at least 2 possible reasons. You have 2 minutes.

1.1 What is Value?

At its core, value is the present worth of future benefits. Every asset — whether a share of stock, a bond, a factory, or an entire company — derives its value from the cash flows it is expected to generate over its lifetime, adjusted for the risk that those cash flows may not materialize and the time one must wait to receive them.

This definition contains four essential building blocks that form the backbone of every valuation model you will encounter in this course:

Cash Flows

The economic benefits the asset generates. For a company, this is the cash available after meeting all operating expenses, taxes, and reinvestment needs — what we call Free Cash Flow.

Risk

The uncertainty surrounding those cash flows. Higher risk means investors demand a higher return, which reduces the present value. Risk is captured through the discount rate.

Time

A rupee received today is worth more than a rupee received tomorrow. The further into the future a cash flow lies, the less it contributes to today's value. This is the principle of the time value of money.

Growth

The rate at which cash flows are expected to increase over time. Even modest differences in growth assumptions can produce dramatically different valuations.

✎ Your Turn ⏱ 3 min

Rank these four assets from 1 (most valuable) to 4 (least valuable):

  • A) ₹10,00,000 in cash, right now
  • B) A factory guaranteed to generate ₹1,00,000 per year for 20 years
  • C) A patent that may generate ₹5,00,000 per year for 5 years, or may be worthless if a court challenge succeeds
  • D) A brand name that earns ₹50,000 per year and grows 10% annually forever

After ranking, discuss with your neighbor: Which of the four building blocks (Cash Flow, Risk, Time, Growth) affected each of your rankings?

The Fundamental Valuation Equation
Value = f (Cash Flows, Growth, Risk, Time). Every valuation model you build — DCF, relative, or asset-based — is simply a specific way of estimating these four inputs and combining them.
⚡ Quick Think (30 seconds): Can you name a company whose market value fell sharply even though its reported earnings did not change? Think of one example in your head now.
🌎
Real World: In 2023, when the Adani Group's market value dropped by over $150 billion following the Hindenburg Research report, it was a dramatic illustration of how reassessments of risk and governance can reprice a company almost overnight — even when reported earnings remain unchanged.

1.2 Why Valuation Matters

Valuation is not an abstract academic exercise. It is the foundation of nearly every major financial decision a business makes. Here is where valuation drives action:

Decision Context Role of Valuation Typical Practitioner
Investment Analysis Determine whether a stock is overvalued, undervalued, or fairly priced relative to its intrinsic worth Equity Research Analyst, Portfolio Manager
Mergers & Acquisitions Establish the fair price for a target company and quantify potential synergies Investment Banker, M&A Advisor
Corporate Finance Evaluate capital allocation choices — invest in a project, buy back shares, or pay dividends CFO, Corporate Development
Private Equity & Venture Capital Price entry and exit transactions for unlisted companies PE/VC Professional
IPO Pricing Set the offer price band for a company going public Merchant Banker, SEBI-registered Lead Manager
Strategic Planning Identify which business units create value and which destroy it, guiding resource allocation CEO, Strategy Consultant
💼 Career Connection ⏱ 2 min

Look at the table above. Which role interests you most?

  1. Pick the one career path that aligns with your goal.
  2. In one sentence, write down: "I would use valuation to _______________."
  3. Share with your neighbor — how many of you picked different paths?
📝
Note: Valuation is both an art and a science. The science lies in the mechanical construction of models and the mathematics of discounting. The art lies in the assumptions — growth rates, margins, risk premiums — which require judgment, industry knowledge, and strategic insight. Two skilled analysts can value the same company and arrive at materially different numbers, both entirely defensible. Your goal is not to find the "right" answer but to build a well-reasoned, assumption-transparent valuation.

1.3 Book Value vs Market Value

One of the first distinctions every valuation practitioner must internalize is the difference between book value and market value. Confusing the two leads to fundamental errors in analysis.

1.3.1 Book Value

Book value (or net worth or shareholders' equity) is an accounting construct. It is the value of a company's assets minus its liabilities as recorded on the balance sheet, prepared according to accounting standards (Ind AS in India).

Book Value = Total Assets − Total Liabilities = Shareholders' Equity

Book value suffers from several limitations as a valuation tool:

1.3.2 Market Value / Market Capitalization

Market value (or market capitalization for listed companies) is the price at which the company's equity trades in the stock market, multiplied by the number of shares outstanding.

Market Capitalization = Share Price × Number of Shares Outstanding

Market value reflects the collective judgment of buyers and sellers about the company's future prospects. It incorporates expectations about growth, profitability, risk, and macroeconomic conditions — factors that book value completely ignores.

🌐 Live Data — Your Turn ⏱ 5 min

Open Screener.in on your phone or laptop. Find:

  1. One company where Market Cap > Book Value by a wide margin (at least 10x)
  2. One company where Market Cap is close to Book Value (P/B near 1x)

Write down the company names, their P/B ratios, and a guess at why the gap exists. We will compare results as a class.

Tip: Try different sectors — look at IT, banking, steel, and consumer goods companies.

1.3.3 The Book-to-Market Gap

The difference between market value and book value tells a story about what the market believes the company's assets and franchise are worth beyond their accounting cost.

💡
Pro Tip: The price-to-book (P/B) ratio — market price per share divided by book value per share — is one of the oldest valuation multiples. A P/B below 1.0 may indicate undervaluation, but more often it signals that the market believes the company's assets are worth less than their accounting carrying value, perhaps because of poor returns on those assets. We will explore P/B in depth in Chapter 15.
👥 Think-Pair-Share ⏱ 3 min

Think: A steel company and a software company both have a book value of ₹10,000 crore. The steel company trades at P/B of 0.9x. The software company trades at P/B of 8x. Why?

Pair: Discuss your explanation with your partner. Try to identify two reasons for the gap.

Share: We will call on 3 pairs to share their best explanation with the class.

1.4 Enterprise Value vs Equity Value

Perhaps no conceptual distinction is more important in corporate valuation than the one between enterprise value and equity value. Confusing the two leads to mismatching numerators and denominators — one of the most common valuation mistakes, even among professionals.

1.4.1 Equity Value

Equity value is the value attributable to the common shareholders of the company. It is what remains after all other claimholders — lenders, preferred shareholders, minority interest holders — have been satisfied. For a listed company, equity value is its market capitalization.

Equity Value = Market Capitalization = Share Price × Diluted Shares Outstanding

Equity value is the "headline" number. When a newspaper reports that "TCS is worth Rs. 15 lakh crore," it is reporting equity value. It is the number that matters to a shareholder buying or selling stock.

1.4.2 Enterprise Value

Enterprise value (EV) is the total value of the company's core business operations — the value of the entire firm, not just the equity slice. It represents what it would cost to acquire the entire business, free and clear of its existing debt.

Enterprise Value = Market Capitalization + Total Debt + Preferred Stock + Minority Interest − Cash & Cash Equivalents
✎ Your Turn — Compute EV ⏱ 2 min

Given the following data for a real company, calculate the Enterprise Value:

  • Market Capitalization: ₹3,00,000 crore
  • Total Debt: ₹52,000 crore
  • Cash & Cash Equivalents: ₹18,000 crore
  • Preferred Stock: ₹0
  • Minority Interest: ₹2,500 crore

EV = ___________ crore. When you have your answer, compare with your neighbor.

Reveal answer

EV = 3,00,000 + 52,000 − 18,000 + 2,500 = ₹3,36,500 crore

Let us unpack each component of Enterprise Value:

Component Why Added / Subtracted
Market Capitalization Starting point — the market value of common equity
+ Total Debt Debt holders have a claim on the company's assets ahead of equity holders. To acquire the business unencumbered, you must either assume or repay this debt.
+ Preferred Stock Preferred shares are hybrid instruments with priority over common equity. They are part of the total capital structure.
+ Minority Interest Represents the portion of subsidiaries not owned by the parent. If you consolidate 100% of a subsidiary's revenue but only own 75%, the 25% you do not own is a claim against the consolidated value.
− Cash & Equivalents Cash is not an operating asset — it is a store of value that reduces the net cost of acquisition. If you buy a company for Rs. 1,000 crore and it has Rs. 200 crore in the bank, your net cost is Rs. 800 crore.

1.4.3 The Pizza Analogy

Think of a company as a pizza:

💪 Peer Teaching — Your Turn to Explain ⏱ 4 min

Round 1 (2 min): Partner A explains the pizza analogy to Partner B in your own words. Make it vivid — use another analogy if you can think of one (a house, a car, a team).

Round 2 (2 min): Partner B explains the difference between EV and Equity Value using a completely different analogy (not pizza, not a car).

⚠
Warning — The Most Common Valuation Mistake: Using an enterprise-value-based multiple (like EV/EBITDA) and comparing it to equity value, or using a P/E ratio and comparing it to enterprise value. Always match: equity-value-based metrics (P/E, P/B) to equity value, and enterprise-value-based metrics (EV/EBITDA, EV/Sales) to enterprise value. Mismatching produces nonsense results.

1.5 Key Value Drivers

What makes one company worth more than another? The answer lies in value drivers — the fundamental economic characteristics that determine a company's capacity to generate cash flows, grow them, and sustain that growth over time. Understanding value drivers is essential because they tell you where to focus when analyzing a company.

1.5.1 Revenue Growth

Revenue growth is the most visible value driver and the one that gets the most attention from markets. But not all growth creates value. Growth only creates value when the return on the capital invested to produce that growth exceeds the cost of that capital.

Value-Creating Growth = Revenue Growth where ROIC > WACC

A company that grows revenue at 20% per year but earns a 5% return on capital when its cost of capital is 10% is destroying value with every rupee of growth. Conversely, a company growing at 5% with a 25% ROIC and a 10% cost of capital is creating substantial value. Growth is only valuable when it is profitable growth.

1.5.2 Profit Margins

Margins measure how much of each rupee of revenue the company retains after costs. High and stable margins are a hallmark of competitive advantage:

Margins that are consistently above industry averages suggest the presence of an economic moat — a durable competitive advantage that allows the company to earn excess returns.

1.5.3 Return on Invested Capital (ROIC)

ROIC is arguably the single most important value driver. It measures how efficiently a company converts its invested capital into profits.

ROIC = NOPAT / Invested Capital = EBIT × (1 − Tax Rate) / (Total Debt + Equity − Cash)

The relationship between ROIC and the cost of capital (WACC) determines whether a company creates or destroys value:

Condition Implication
ROIC > WACCThe company creates value. Each additional rupee invested generates returns above the cost of capital.
ROIC = WACCThe company is value-neutral. Growth neither creates nor destroys value.
ROIC < WACCThe company destroys value. Growth accelerates value destruction.

We will study ROIC in detail in Chapter 5.

📈 Which Company Wins? ⏱ 4 min

Three companies, all in the same industry. Which is the best investment?

MetricCompany XCompany YCompany Z
Revenue Growth20%8%15%
Operating Margin8%22%12%
ROIC6%35%14%
WACC10%10%10%

Rank the companies from best to worst investment. With your partner, write down one reason for your #1 pick.

Reveal our analysis

Company Y is the strongest — it creates value (ROIC 35% > WACC 10%) and its 8% growth is sustainable. Company X is the weakest — its 20% growth actually destroys value because ROIC (6%) is below WACC (10%). This is a preview of Chapter 5!

1.5.4 Competitive Advantage Period (CAP)

Also called the sustainable growth period or moat duration, this is the length of time a company can sustain returns above its cost of capital. No company earns excess returns forever — competition erodes advantages over time. The longer the CAP, the higher the value.

Factors that extend CAP include: strong brands, patents, regulatory barriers, network effects, switching costs, and cost advantages. These are the qualitative factors that sit behind the quantitative assumptions in your model.

1.5.5 The Value Driver Tree

These drivers connect in a logical hierarchy. At the top sits the ultimate measure: shareholder value. Beneath it, the value drivers cascade:

  • Shareholder Value — driven by growth and ROIC relative to WACC
  • Revenue Growth — driven by market size, market share, pricing power
  • Operating Margin — driven by cost structure, economies of scale, pricing
  • ROIC — driven by margins and capital efficiency (asset turnover)
  • Cost of Capital (WACC) — driven by business risk, financial leverage, market conditions
  • Competitive Advantage Period — driven by industry structure, barriers to entry, innovation

    • 1.6 The Valuation Process: A Roadmap

    Every valuation follows a structured process. While the specific techniques vary by context (DCF vs relative vs asset-based), the overarching framework is consistent. Here is the roadmap we will follow throughout this course:

  • Understand the Business — Analyze the industry, competitive position, business model, and strategy. You cannot value what you do not understand. Read the annual report, the management discussion, the industry reports.
  • Analyze Historical Financial Performance — Extract 5+ years of financial statements. Compute ratios, growth rates, margins, and ROIC. Identify trends, anomalies, and the economics of the business as revealed by the numbers.
  • Forecast Future Performance — Project revenue, margins, capex, working capital, and taxes. Build integrated financial statements. This is where the art of valuation lives — your assumptions about the future drive the result.
  • Estimate the Cost of Capital — Calculate WACC as the discount rate. For Indian companies, incorporate the country risk premium. The discount rate must match the cash flows being discounted.
  • Calculate Free Cash Flows — Convert accounting earnings into cash available to capital providers (FCFF) or equity holders (FCFE).
  • Estimate Terminal Value — Value the cash flows beyond the explicit forecast period. This often represents 60–80% of the total DCF value.
  • Discount and Derive Value — Bring all future cash flows to present value. Derive enterprise value, then equity value. Compute the per-share intrinsic value.
  • Perform Sensitivity & Scenario Analysis — Test how the valuation changes under different assumptions. Identify the key drivers of uncertainty.
  • Cross-Check with Relative Valuation — Compare the DCF result with multiples-based valuation using peer companies.
  • Formulate an Investment Recommendation — Synthesize the analysis into a clear buy/hold/sell or investment recommendation with explicit reasoning and risk acknowledgment.

    • 📈 Quick Reflection: Review the 10 steps above. Which step aligns most with the career you identified in Section 1.2? Why? Write it down — you will revisit this at the end of the course.

    1.7 The Three Approaches to Valuation

    There are three broad approaches to valuing a company. A complete valuation typically uses at least two, and the most thorough analyses use all three, triangulating toward a range of reasonable values.

    1.7.1 Intrinsic Valuation (Discounted Cash Flow)

    Philosophy: The value of an asset is the present value of its expected future cash flows, discounted at a rate that reflects the riskiness of those cash flows.

    Core Model:

    Value = ∑ FCFFt / (1 + WACC)t + Terminal Value / (1 + WACC)n

    Strengths: Theoretically sound; captures all value drivers; forces explicit thinking about the business. Weaknesses: Highly sensitive to assumptions; terminal value dominates; requires detailed forecasts.

    Modules 4–5 (Chapters 10–14) of this course are dedicated to DCF valuation.

    1.7.2 Relative Valuation (Multiples)

    Philosophy: The value of an asset is derived from the pricing of comparable assets, standardized using a common variable like earnings, book value, or revenue.

    Core Model:

    Valuetarget = Multiplepeer group × Fundamentaltarget

    Strengths: Simple; reflects current market sentiment; easy to communicate. Weaknesses: "Right" if peers are correctly priced; sensitive to peer selection; ignores company-specific differences.

    Module 6 (Chapters 15–16) covers relative valuation in depth.

    1.7.3 Asset-Based Valuation

    Philosophy: The value of a company equals the fair market value of its assets minus the fair value of its liabilities.

    Core Model:

    Equity Value = Fair Value of Assets − Fair Value of Liabilities

    Strengths: Objective; useful for liquidation scenarios, holding companies, and asset-heavy businesses. Weaknesses: Ignores going-concern value; misses intangible and organizational capital.

    📝
    Note: This course emphasizes intrinsic (DCF) valuation as the primary framework and relative valuation as the complementary cross-check. Asset-based valuation is covered in the context of specific applications — liquidation, holding companies, and sum-of-parts analysis.
    🎨 Match the Method ⏱ 3 min

    Match each scenario to the best valuation approach. Discuss your reasoning with a partner.

    ScenarioBest Approach
    1. Mature company with stable, positive cash flows___ Intrinsic / DCF
    2. Bankrupt company being liquidated___ Asset-Based
    3. IPO pricing of a company with listed peers___ Relative / Multiples
    4. High-growth startup with no earnings___ Relative (EV/Sales)
    5. Holding company with investments in real estate___ Asset-Based (NAV)
    Check your answers

    1-DCF, 2-Asset, 3-Relative, 4-Relative, 5-Asset. The key insight: the best method depends on what type of company you are valuing and what information is available.

    📋 Stable content — Reviewed: June 2026

    1.8 Valuation in the Indian Corporate Landscape

    While the principles of valuation are universal, the Indian context introduces specific considerations that practitioners must account for:

    1.8.1 Promoter-Dominated Ownership

    Most listed Indian companies have a dominant promoter (founding family or group) holding a significant stake — often 40–65%. This creates a principal-agent dynamic different from the dispersed-ownership model common in the US and UK. Valuation implications include:

    1.8.2 Country Risk Premium

    India carries a sovereign risk premium above the US risk-free rate. When estimating the cost of equity for an Indian company, you must add a country risk premium (CRP) to account for macroeconomic, political, and currency risks that are not diversifiable for a domestic investor. This directly increases WACC and reduces valuation relative to a comparable US company.

    Cost of Equity (India) = Risk-Free Rate + Beta × Equity Risk Premium + Country Risk Premium

    We will calculate this precisely in Chapter 11.

    1.8.3 Regulatory Framework

    Key regulations affecting valuation practice in India:

    1.8.4 Data Availability

    Indian financial data is increasingly accessible but still has gaps compared to developed markets:

    1.9 Common Valuation Myths

    Before we dive into the technical material, let us dispel some persistent myths that can derail your thinking:

    👍 Myth or Fact? — Class Vote ⏱ 2 min

    I will read each statement. Vote: is it a Myth (false) or Fact (true)?

    • "A DCF model that tells you a stock is worth exactly Rs. 847.32 is more credible than one that says Rs. 800–900." (Myth)
    • "If the stock market price is different from my DCF value, the market is wrong." (Myth)
    • "Valuation thinking is useful only for finance professionals." (Myth)

    Method: Thumbs up = Fact, Thumbs down = Myth, Open palm = Not sure. We will discuss after each vote.

    ⚠
    Myth 1: "A valuation model gives you the right answer."
    A model gives you a reasoned estimate based on your assumptions. Different assumptions produce different results. The quality of a valuation lies in the quality and transparency of its assumptions, not the precision of its output. A valuation that says a stock is worth exactly Rs. 847.32 is less credible than one that says it is worth Rs. 800–900 with the following key drivers.
    ⚠
    Myth 2: "A more complex model produces a better valuation."
    Complexity adds the illusion of precision. A simple model with well-thought-out assumptions beats a complex model with garbage inputs every time. Start simple, understand the drivers, and add complexity only when it meaningfully improves the analysis.
    ⚠
    Myth 3: "If the market price differs from my DCF value, the market is wrong."
    The market embeds the collective wisdom (and folly) of thousands of participants. When your valuation differs from the market price, the question is: what do you know that the market doesn't, or what does the market believe that you think is wrong? The burden of proof is on you.
    ⚠
    Myth 4: "Valuation is only for finance professionals."
    Valuation thinking is essential for anyone in business — marketers evaluating pricing strategies, operations managers justifying capital investments, HR leaders designing compensation plans tied to value creation. Any decision that allocates resources is, implicitly, a valuation decision.

    Hands-On Project: Your First Valuation Snapshot

    In this exercise, you will compute the basic valuation metrics for any listed Indian company of your choice and interpret what the numbers tell you about the business. This is a "light" exercise to build intuition before we start modeling with Python in Chapter 3.

    Steps

    1. Pick a company: Choose any NSE-listed company you are interested in. Suggestions: Reliance, TCS, Infosys, Asian Paints, Titan, or a company from your own sector of interest.
    2. Go to Screener.in or Moneycontrol and find the following data points:
      • Current share price
      • Number of shares outstanding (diluted)
      • Total debt (long-term + short-term borrowings)
      • Cash and cash equivalents
      • Book value (shareholders' equity / net worth)
      • Revenue (latest fiscal year)
      • EBITDA (latest fiscal year)
      • Net profit (latest fiscal year)
    3. Calculate:
      • Market Capitalization = Share Price × Shares Outstanding
      • Enterprise Value = Market Cap + Debt − Cash
      • Price-to-Book (P/B) = Market Cap / Book Value
      • Price-to-Earnings (P/E) = Market Cap / Net Profit
      • EV/EBITDA = Enterprise Value / EBITDA
      • EV/Revenue = Enterprise Value / Revenue
    4. Interpret: Write a 200-word paragraph answering:
      • What does the P/B ratio tell you about how the market views this company's assets?
      • How does the company's EV compare to its market cap? What does the difference tell you about its capital structure?
      • Based on these limited metrics, does the company appear to be a "growth" or "value" type of investment?
    5. Peer Review (NEW): Exchange your 200-word paragraph with a partner. Give ONE piece of feedback: "What would you add or challenge?" Then revise your paragraph based on the feedback received.
    View Solution / Walkthrough

    Example: Titan Company Ltd (as of mid-2026)

    Share Price:             Rs. 3,420
Shares Outstanding:     278 crore
Market Capitalization:  Rs. 3,420 × 278 = Rs. 9,50,760 crore (~Rs. 9.51 lakh crore)

Total Debt:             Rs. 4,800 crore
Cash & Equivalents:     Rs. 2,100 crore
Enterprise Value:       Rs. 9,50,760 + 4,800 − 2,100 = Rs. 9,53,460 crore

Book Value:             Rs. 12,500 crore
P/B Ratio:              9,50,760 / 12,500 = 76.1x

Revenue:                Rs. 54,000 crore
EBITDA:                 Rs. 7,800 crore
Net Profit:             Rs. 5,200 crore

P/E Ratio:              9,50,760 / 5,200 = 182.8x
EV/EBITDA:              9,53,460 / 7,800 = 122.2x
EV/Revenue:             9,53,460 / 54,000 = 17.7x

    Interpretation:

    • P/B of 76x — The market values Titan at 76 times its accounting book value. This is typical for a premium consumer franchise where most of the value comes from brand, distribution network, and customer trust — none of which appear on the balance sheet at fair value. Titan's true economic assets (brand, store network, design capability) dwarf its tangible book.
    • EV vs Market Cap — The two are nearly identical (EV of Rs. 9.53 lakh crore vs market cap of Rs. 9.51 lakh crore) because Titan has very little net debt. The company is largely equity-financed, which is common for high-quality consumer businesses with strong cash generation and low capital intensity.
    • Growth vs Value: A P/E of 183x and EV/EBITDA of 122x are premium multiples, indicating the market expects strong future growth. Titan is a "growth" stock in valuation terms, with the market pricing in years of continued expansion. The key question for a full valuation would be: can Titan sustain the revenue growth and ROIC needed to justify these multiples?

    Key takeaway from the exercise: Even with just 6 simple calculations, you already have a meaningful picture of how the market views this company. The next 17 chapters will give you the tools to go from these surface-level multiples to a rigorous, assumption-driven intrinsic valuation.

    Key Takeaways

    1

    Value is the present worth of future benefits — driven by cash flows, growth, risk, and time. Every valuation model is a framework for estimating these four inputs.

    2

    Book value is an accounting measure reflecting historical costs. Market value reflects expectations about the future. The gap between them reveals what the market believes about a company's franchise value.

    3

    Enterprise value is the total value of a business's operations. Equity value is the slice belonging to shareholders. The golden rule: always match your numerator and denominator.

    4

    Value drivers — revenue growth, margins, ROIC, and competitive advantage period — are the economic fundamentals that determine a company's capacity to create shareholder wealth.

    5

    Growth only creates value when ROIC exceeds WACC. A fast-growing company earning below its cost of capital is destroying value — a fact that surprises many newcomers to valuation.

    Test Your Understanding

    1. Which of the following best defines "value" in corporate finance?

    2. A company has a market capitalization of Rs. 5,000 crore, total debt of Rs. 2,000 crore, cash of Rs. 500 crore, and no preferred stock or minority interest. What is its Enterprise Value?

    3. Which of the following is a limitation of book value as a measure of a company's worth?

    4. Under what condition does revenue growth create shareholder value?

    5. You are comparing a company using EV/EBITDA and P/E multiples. Your colleague uses EV/EBITDA for Company A and P/E for Company B and concludes that Company B is cheaper because its P/E of 12 is lower than Company A's EV/EBITDA of 15. What is wrong with this comparison?

    📝 Quick Reflection ⏱ 1 min

    Which question was the hardest for you? Why? Write down one concept from this chapter that you want to revisit before Chapter 2.