PE versus EV multiples both PE ratios and EV multiples are widely used by analysts in trading comps valuation often alongside each other. So what might limit the usefulness of these multiples? And what does it mean if we observe conflicting trends when we're looking at PE ratios versus EV multiples? There are two major differences between PE ratios and EV multiples. The first difference is the impact of Leverage Equity metrics are affected by leverage while Enterprise volumetrics are unaffected by Leverage. If two companies have identical operations, but different levels of Leverage. We would expect both companies to have similar EV to ebit and EV to ebitda multiples, but we would expect the company with higher leverage to have a lower PE multiple. So if a company has a low PE ratio compared with its peers, but is trading in line with peers on EV multiples. This is indicative that the company has high leverage than peer companies. This means that where a company has different leverage to its peers. We would expect to put more Reliance on EV multiples. The second difference is the impact of taxes. PE ratios rely on a post tax earnings metric since EPS is calculated using profits after tax. Whilst most EV multiples such as EV to ebit and EV to editda use pre-tax earnings metrics. If two companies have identical operations and leverage but different tax rates at EV multiples will be distorted by the fact that we're excluding important costs from our earnings. In this case, we would expect both companies to have similar PE ratios, but the company with a higher tax rate would have a lower EV multiple. This is because they're pre-tax earnings are inflated relative to the cash flows that they generate. So if a company has a low EV multiple compared with peers but as trading in line on a PE basis, this is indicative that the companies have different tax rates. This means that where a company has a different tax rate to its peers. We would either put more Reliance on PE ratios, or we could look to use a post tax EV multiple such as EV to nopat. One further thing to flag here is that in general? We try to minimize the use of global comps because if companies operate in very different markets, they may well also have very different risk profiles. Not just different tax rates. This means that we would need to worry about more than just Distortion in the earnings multiple as there is a genuine lack of comparability between these peers.