Trading Comps Example: EV/EBITDA to Share Price
Give an analyst a peer multiple and a company's EBITDA and they can price the stock in their head: EV = multiple × EBITDA, subtract net debt, divide by shares. Master the bridge and you can value any peer in seconds.
Why this matters
What trading comps actually are
Comparable company analysis — "trading comps" — values a business by looking at what the public market pays for similar companies right now. You gather a peer group, compute a valuation multiple for each (most commonly EV/EBITDA), take a representative figure such as the median, and apply it to your target's own EBITDA. The logic is simple: if the market pays 10x EBITDA for this company's closest peers, a similar business is worth roughly 10x its EBITDA too.
The catch is that the multiple lands on enterprise value, not on the share price. To get from one to the other you have to walk the EV-to-equity bridge — subtract net debt — and then divide by the share count. Interviewers love this question precisely because it forces you to keep enterprise-value and equity-value metrics straight. Fumble the bridge and every downstream number is wrong.
This guide walks one clean example end to end, explains why the bridge works the way it does, flags the mistakes that sink candidates, and then hands you a graded drill so the arithmetic becomes automatic.
Worked example
One comp, start to finish
The inputs
- Peer EV/EBITDA multiple10.0x
- EBITDA$200M
- Net debt$500M
- Shares outstanding100M
- Net income$100M
Step 1 — Implied enterprise value
Apply the peer multiple to your target's EBITDA. Because it is an EV/EBITDA multiple, the product is enterprise value:
Implied EV = 10.0x × $200M = $2,000M
Step 2 — Implied equity value
Cross the bridge from enterprise value to equity value by subtracting net debt — the claim that belongs to debtholders before shareholders see a cent:
Equity value = $2,000M − $500M = $1,500M
Step 3 — Implied share price
Divide equity value — never enterprise value — by the shares outstanding:
Share price = $1,500M / 100M = $15.00
Step 4 — Implied P/E multiple
Finish with a sanity check. P/E is an equity metric, so it pairs equity value with net income — a bottom-line, post-interest figure:
Implied P/E = $1,500M / $100M = 15.0x
A 15.0x P/E is a reasonable market multiple, which tells you the 10x EV/EBITDA is internally consistent. If this had spat out 45x or 4x, you would go back and question the peer multiple or the net-income assumption before trusting the output.
The intuition
Why EV first, then subtract net debt
The reason you value on EV/EBITDA and only later back into equity is that EBITDA sits above interest expense on the income statement. It measures the cash the operating business throws off before anyone decides how to finance it. That makes EBITDA — and therefore EV/EBITDA — capital-structure neutral: two companies with identical operations but different debt loads produce the same EV/EBITDA multiple. Peers stay comparable no matter how each one is financed.
Enterprise value inherits that neutrality. It is the value of the whole business to every capital provider — debtholders and equityholders together. So when you multiply a peer EV/EBITDA by your target's EBITDA, you get the value of the entire enterprise, not the slice that belongs to shareholders. To isolate the equity, you hand the debtholders their claim first: equity value = EV − net debt.
Net debt is total debt minus cash, because cash on the balance sheet could in principle be used to retire debt immediately. A company drowning in debt has a large slice of its enterprise value spoken for, leaving little for shareholders; a net-cash company adds that surplus back. In our example, $500M of the $2,000M enterprise belongs to lenders, so equity is $1,500M — and only after that division by share count does a per-share price appear. Get the order wrong and the whole valuation collapses.
Watch out
Common mistakes
Mixing EV and equity metrics
Enterprise-value multiples pair with pre-interest figures (EBITDA, EBIT, revenue); equity multiples pair with post-interest figures (net income, EPS). Putting a P/E on EBITDA, or dividing enterprise value by share count instead of equity value, crosses the streams and produces nonsense. Keep EV metrics on one side of the bridge and equity metrics on the other.
Forgetting to subtract net debt
The most frequent slip is dividing enterprise value straight by shares. In our example that would give $2,000M / 100M = $20.00 — overstating the stock by a third because you never handed the debtholders their $500M. Always subtract net debt (and preferred stock and minority interest, when present) before you touch the share count.
Using the wrong period's EBITDA
A forward multiple must sit on forward EBITDA and a trailing (LTM) multiple on trailing EBITDA. Apply a next-twelve-months multiple to last-twelve-months EBITDA and you mismatch the period the market is pricing, skewing the answer. Confirm your peer multiple and your target EBITDA cover the same window before multiplying.
Trusting one comp without a sanity check
A single multiple can mislead if a peer is an outlier or the group is thin. Back into the implied P/E — as we did to land on 15.0x — and ask whether it looks like a market multiple. If the implied equity metric is absurd, revisit the peer set or the multiple rather than reporting the output.
FAQ
Frequently asked questions
How do you value a company using trading comps?
Take a valuation multiple from a peer group — most often EV/EBITDA — and apply it to your target's EBITDA to get an implied enterprise value. Then subtract net debt to reach equity value, and divide by shares outstanding for an implied share price. With a 10x peer multiple on $200M of EBITDA, implied EV is $2,000M; less $500M of net debt gives $1,500M of equity; over 100M shares that is $15.00 per share.
Why do you subtract net debt when going from EV to equity value?
Enterprise value is the value of the whole business to all capital providers — debt and equity. Equity value is what is left for shareholders after the debtholders are paid. Net debt (total debt minus cash) is the debtholders' claim, so equity value = enterprise value − net debt. Skipping this bridge is the single most common comps error.
Why value on EV/EBITDA instead of P/E?
EV/EBITDA is capital-structure neutral. EBITDA sits above interest expense, so two companies with identical operations but different leverage produce the same EV/EBITDA — which makes peers comparable. P/E, by contrast, is distorted by how much debt each company carries. You value on EV/EBITDA to compare like with like, then derive P/E at the end as a sanity check.
What is the difference between enterprise value and equity value?
Enterprise value (EV) is the total value of the operating business, independent of financing. Equity value (market capitalization) is the portion belonging to shareholders. They are linked by the bridge: equity value = EV − net debt (and, more fully, minus preferred stock and minority interest). EV pairs with EBITDA and EBIT; equity value pairs with net income and EPS.
What are the most common trading comps mistakes in interviews?
Mixing EV and equity metrics (for example dividing enterprise value by shares, or putting a P/E multiple on EBITDA), forgetting to subtract net debt on the EV-to-equity bridge, and using the wrong period's EBITDA — applying a forward multiple to trailing EBITDA, or vice versa. Each one quietly produces a share price that is wrong by a lot.
Now make the math automatic
Reading a worked example is one thing — doing it under a timer is another. Run the graded trading comps drill with fresh numbers every attempt, or build the full comparable-company analysis with live data.