P/E is the most popular valuation multiple, but it's not the most rigorous. Professional analysts and investment bankers rely heavily on EV/EBITDA for cross-company comparisons because it normalizes for capital-structure and tax differences that distort P/E. Other multiples — Price-to-Sales, Price-to-Book, Price-to-FCF — fit specific business types better than P/E.

Knowing which multiple to use when is one of the highest-leverage analytical skills. Enterprise Value (covered in m0_l3) = Market Cap + Total Debt − Cash. It captures the total price an acquirer would pay to take the business private.

EBITDA = Earnings Before Interest, Taxes, Depreciation, Amortization — operating income before financing decisions and non-cash items. EV/EBITDA expresses how much an acquirer is paying per dollar of operating cash flow proxy. Because the metric strips out interest expense (financing) and taxes (jurisdiction-dependent), it makes companies with different debt levels and different tax rates more comparable.