Which of the following is a reason EV/EBITDA multiples would differ between two companies in different industries?

• A. Growth prospects
• B. Tax rate parity
• C. Geographic diversification
• D. Brand color

Answer: (A)

Growth prospects drive EV/EBITDA multiples because this metric reflects how much investors are willing to pay today for a company’s future EBITDA. If an industry is expected to grow faster, the EBITDA in the coming years is forecast to be higher, so the market assigns a higher multiple to reflect that greater growth potential.

Tax rate parity isn’t the main factor here since EBITDA is calculated before taxes, so differences in tax rates don’t directly change the measure. Geographic diversification and branding don’t inherently explain why one industry would trade at a higher multiple than another; they may influence risk or competitive positioning, but the clearest, most direct reason across industries is the differing growth outlook.