It can be seen that with some multiples leverage or debt or capital structure or financing mix has a very big impact on the multiple, whereas with other multiples, leverage or debt has no impact at all. Let's look at an example. In this table, we've got three sections. The value section on the left, value driver in the middle, and a ratio section on the right hand side.

If we look at the left hand side, the value section, that is an EV equity bridge. I've got an EV of a thousand. I then add cash of 800.

Subtract debt of 0 gets me to my equity 1800.

I then divide that by the number of shares of 100, and that gets me to a share price of 18. Now, just to point it out here, this company has high levels of cash and no debt. Very, very important attribute in this example, and we'll see that financing mix change later. Now, let's look at the middle. We've got an income statement extract in the value driver section. So EBIT plus interest income minus interest expense minus the tax expense gets me to net income of 75.6. Divide that by the number of shares. It's the same 100 as we saw earlier. That gets me to an EPS or earnings per share of 0.8. I can now create two multiples or ratios on the right hand side. I can take the EV of 1000 divided by EBIT of 100, gets me to my multiple of 10, and I can take my share price of 18 divided by EPS of 0.8 gets me to 23.8. So two multiples. Now let's look at a second example. The only figures that we've changed here are the cash and debt figures in the value section. This company has higher levels of debt. Let's just look at the multiple at the top of the second example. EV is a thousand, EBIT is a hundred. The multiple is 10. So we are looking in this second example at basically the same company. It's got the same ev, it's got the same EBIT, it's got the same EV multiple as in the first example. However, because of the difference in cash and debt or my financing mix or my capital structure, our PE multiple is going to be very, very different. Let's go through this second table. So EV of 1000 plus cash of 0, subtract debt of 800 gets me to equity of 200. Divide that by the number shares gets me to a share price of 2. Okay, So 2, that's the first important figure that we've got. Now we go through the value driver section in the middle. So EBIT plus interest income. Now 0 cause we've got no cash minus interest expense, much greater now cause we've got lots of debt. Subtract the tax expense gets me to net income of 42. Divide that by the number of shares gets me EPS of 0.4. So we've got a lower share price and a lower EPS. What has that done? That's given me a much lower PE multiple. It was 23.8, it's now 4.8. So how can we sum this up? Well, in both cases, the business is the same. It has the same ev, the same EBIT, 1,100. Thus it has the same ebit, multiple of 10, only the capital structure changes. I.e. the cash and debt levels change. This thus means that our EV multiples remain unchanged, but our PE multiples change dramatically, and we can sum it up by saying that the financing mix or our capital structure affects equity multiples, not EV multiples.