Which valuation multiple is commonly used in comparable companies analysis to measure the return on investment?

The valuation multiple used in comparable companies analysis to measure the return on investment is Enterprise Value/EBITDA. This multiple is favored because it provides a clearer picture of the company’s overall financial performance, as it accounts for both the earnings generated and the capital structure by combining the company’s market capitalization with its debt and excluding cash.

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, serves as a proxy for the cash flow generated by the business. By looking at the relationship between Enterprise Value and EBITDA, analysts and investors can assess how much value the market places on each unit of earnings before the costs of capital and taxes are considered. This is especially useful in comparable companies analysis because it allows for a more apples-to-apples comparison of firms in the same industry, regardless of their respective debt levels or tax situations.

The other choices provided do not effectively measure the return on investment in the same way. Price/Book Value primarily reflects the accounting value of equity, while Price/Revenue measures revenue rather than cash generation, and the Debt/Equity Ratio focuses on leverage rather than valuation. Thus, Enterprise Value/EBITDA stands out as the most relevant multiple in this context.