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Quick question. I know they say you should use EV/EBITDA for capital intensive type company's but I don't understand why. If you want to compare companies that are capital intensive and that's a major part of their business, wouldn't you want to use a multiple that includes an interest charge? Or is it because capital structure can be changed so best to exclude it?

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second part is more correct. we are trying to compare companies here. We want to exclude the effects of all that debt. Some would say this is a dumb idea but i think it helps get a better feel for pure earnings power rather than say EPS which is net income and after all the interest and stuff. Feel free to correct me if I'm wrong.

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It depends what you are comparing....ev/ebitda is good for comparing firms with different capital structure. For capital intensive firms I would look at various cash flow and coverage ratios.

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EV/EBITDA is frequently used to compare capital intensive companies because EBITDA is pre-depreciation and amort. So, even if the firms are using different dep methods, they can still be compared. Capital intensive firms have major dep. expense.

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