When would you use EV/EBITDA instead of P/E?

Both are valuation multiples, but they measure different things. EV to EBITDA compares the value of the whole business to its operating profit before interest. P/E compares the share price to the earnings left for shareholders after interest and taxes. I'd use EV to EBITDA when I'm comparing companies with different amounts of debt. Interest expense lowers net income, so more debt changes the P/E. EV to EBITDA isn't affected, because enterprise value includes the debt and EBITDA is before interest. It also helps when depreciation policies or tax rates differ, since EBITDA is before both. It still works when net income is negative but EBITDA is positive, where P/E has no meaning. I'd use P/E when I'm looking from a shareholder's point of view, and for banks and insurers. The rule underneath is to match the numerator and the denominator. Enterprise value goes over a profit number before interest, and equity value goes over net income.

Both are valuation multiples, but they measure different things. EV to EBITDA compares the value of the whole business to its operating profit before interest. P/E compares the share price to the earnings left for shareholders after interest and taxes. I'd use EV to EBITDA when I'm comparing companies with different amounts of debt. Picture two companies with the same operations, one funded mostly with equity and one mostly with debt. Interest expense lowers net income, so more debt changes the P/E even though the business is the same. EV to EBITDA isn't affected, because enterprise value includes the debt and EBITDA is before interest. It also helps when depreciation policies or tax rates differ, since EBITDA is before both. It still works when net income is negative but EBITDA is positive, where P/E has no meaning. And it's the natural multiple for a takeover, because the buyer gets the whole company and has to take on or repay its debt. I'd use P/E when I'm looking from a shareholder's point of view, and for banks and insurers. For a bank, borrowing is part of the operations, so interest is an operating cost and EBITDA isn't a useful number. There I'd look at P/E and price to book. The rule underneath is to match the numerator and the denominator. Enterprise value goes over a profit number before interest, and equity value goes over net income. Enterprise value over net income would put all investors' value on top of shareholders' profit, and the result means nothing. One caution is that EBITDA ignores capital spending. Two capital-heavy companies can have the same EV to EBITDA and very different cash flows, so there I'd check EV to EBIT too.