Final answer:
Equity Value / EBITDA cannot be used as a multiple because Equity Value does not account for the company's debt and cash positions, leading to an incomplete view of the company's valuation. Enterprise Value, including debt and cash among other things, offers a fuller picture that is more aligned with EBITDA's representation of company-wide financial performance.
Step-by-step explanation:
You can't use Equity Value / EBITDA as a multiple rather than Enterprise Value / EBITDA because Equity Value does not incorporate the company's debt and cash position. Using Equity Value alone would not give a complete picture of the company's financial standing for valuation purposes.
When valuing a company, Enterprise Value (EV) is often preferred over Equity Value because EV takes into account the entire economic value of a company. Importantly, it includes debt, preferred shares, minority interests, and cash, essentially representing the value that would need to be paid to purchase the whole company outright including assuming its debt.
Equity Value is effectively the value attributable to the company's shareholders after debts and other financial obligations have been settled. However, EBITDA is a measurement of a company's overall financial performance and is often used as a proxy for the operating cash flow available to fund all capital providers: debt and equity holders alike. Therefore, using Equity Value with EBITDA ignores the claims of debt holders on the company's cash flows and assets.