Valuation Multiples by Sector: The Cheat Sheet Every IB Candidate Needs

You've memorized EV/EBITDA. Then an interviewer asks how you'd value a bank, a REIT, or an oil producer, and EV/EBITDA suddenly isn't the right answer.

Every industry has a "house" multiple that bankers default to, and the choice is never random. It comes from how each business makes money and how its accounting works.

This post gives you the cheat sheet, the logic behind each pick, and the interview questions that test it. Learn the why, and you can reason through any sector, even one you've never studied.

The One Rule Behind Every Multiple

Before the sector list, lock in this rule: the numerator and denominator must belong to the same investor group.

• Enterprise Value (EV) belongs to all capital providers (debt and equity). Pair it with metrics before interest: revenue, EBITDA, EBIT.
• Equity Value (market cap) belongs to shareholders only. Pair it with metrics after interest: net income (P/E), book value (P/B), FFO.

Mixing them, like EV/Net Income, is a classic interview red flag. Nearly every sector-specific multiple below follows this rule, so keep it in mind as you read.

The Cheat Sheet

Now let's dig into the sectors interviewers love most.

Technology and SaaS: When Earnings Don't Exist Yet

Many high-growth software companies reinvest everything into sales and R&D, so EBITDA is small or negative. A multiple of a negative number is meaningless.

That's why bankers use EV/Revenue or EV/ARR (annual recurring revenue) for these companies. Once a company matures and margins stabilize, the market shifts toward EV/EBITDA and eventually P/E.

The Catch With EV/Revenue

Revenue multiples ignore profitability. Two companies with the same revenue can deserve very different valuations if one has 80% gross margins and the other has 40%.

So when you compare SaaS comps, also look at:

• Growth rate (the biggest driver of revenue multiples)
• Gross margin
• Net revenue retention (do existing customers spend more each year?)
• Rule of 40: revenue growth % + profit margin % should be at least 40

Interview tip: If asked why one SaaS company trades at a higher EV/Revenue than another, start with growth, then margins, then retention.

Banks: Why EV/EBITDA Breaks Down

This is the single most common sector question in IB interviews.

For a normal company, debt is financing. For a bank, debt (deposits, borrowings) is the raw material. Banks borrow money and lend it out at a spread. Interest expense is an operating cost, like cost of goods sold for a manufacturer.

That means:

• EV is meaningless: you can't cleanly separate "operating" debt from "financing" debt.
• EBITDA is meaningless: stripping out interest strips out the core business.

So bankers use equity-based multiples: P/E and P/TBV (price to tangible book value, which removes goodwill and intangibles).

Worked Example: Why One Bank Deserves 1.7x Book

P/TBV is tied to profitability. A simplified "justified" formula:

P/TBV = (ROTE − g) / (Cost of Equity − g)

Say a bank has:

• Return on tangible equity (ROTE): 15%
• Long-term growth (g): 3%
• Cost of equity: 10%

P/TBV = (15% − 3%) / (10% − 3%) = 12% / 7% ≈ 1.7x

Now drop ROTE to 8%, below the cost of equity:

P/TBV = (8% − 3%) / (10% − 3%) = 5% / 7% ≈ 0.7x

The takeaway: a bank earning less than its cost of equity should trade below book value. That's a great insight to drop in an interview.

Insurance Works Similarly

Insurers also hold large balance sheets of invested assets backing their liabilities, so P/B and P/E dominate. You'll sometimes see Price/Embedded Value for life insurers, especially in Europe.

REITs: Fixing the Depreciation Problem

Real estate investment trusts own buildings. Accounting rules force them to depreciate those buildings, but well-maintained real estate often holds or gains value over time.

That makes net income look artificially low, so P/E understates the business. The fix is FFO (Funds From Operations):

FFO = Net Income + Real Estate Depreciation & Amortization − Gains on Property Sales

You remove gains because selling a building is not a recurring operating activity. (Impairments on real estate are also typically added back.)

AFFO (Adjusted FFO) goes a step further by subtracting recurring capex, like roof repairs and tenant improvements, and adjusting for straight-line rent. Many analysts see it as a better proxy for distributable cash.

Worked Example

A REIT reports:

• Net income: $100M
• Real estate depreciation: $80M
• Gain on sale of a property: $20M
• Recurring maintenance capex: $25M
• Market cap: $2,400M

FFO = 100 + 80 − 20 = $160M → P/FFO = 2,400 / 160 = 15.0x

AFFO = 160 − 25 = $135M → P/AFFO = 2,400 / 135 ≈ 17.8x

Notice that P/FFO uses market cap, not EV. FFO is after interest, so it pairs with equity value. The consistency rule strikes again.

Bonus: REITs are also compared on P/NAV (price vs. the estimated market value of the property portfolio minus debt) and on implied cap rates.

Oil and Gas: EBITDAX and Reserves

Exploration and production (E&P) companies can account for exploration costs in two ways:

• Successful efforts: failed (dry hole) exploration costs are expensed immediately.
• Full cost: exploration costs are capitalized, whether successful or not.

The same underlying business can show very different EBITDA depending on the method. EBITDAX (EBITDA before exploration expense) neutralizes this, so EV/EBITDAX compares companies on equal footing.

Since an E&P's value lives in what's in the ground, you'll also see:

• EV/Proved Reserves (EV per barrel of oil equivalent of reserves)
• EV/Daily Production (EV per flowing barrel per day)
• P/NAV based on a reserve-by-reserve DCF

Mining uses similar logic: P/NAV and EV per unit of resource dominate, because mines are depleting assets with finite lives.

Retail and Airlines: Why EBITDAR Exists

Picture two identical retailers. One owns its stores. The other leases them.

• The owner records depreciation (below EBITDA).
• The leaser historically recorded rent as an operating expense (above EBITDA).

Same business, but the owner shows higher EBITDA. EBITDAR (EBITDA before Rent) adds rent back to level the playing field.

To stay consistent, you also have to add the capitalized lease obligation to EV, because you've removed the cost of the leases from the denominator. A common shortcut historically was annual rent × 8, though today you'd typically use the lease liability on the balance sheet.

A Note on Lease Accounting

Under IFRS 16, most operating lease costs now sit in depreciation and interest, so reported EBITDA already excludes them. Under US GAAP (ASC 842), operating lease cost generally still runs through operating expenses, so EBITDAR remains very relevant for US comps.

Interview tip: If you're comparing a US company to a European IFRS reporter, flag that lease accounting can make their EBITDA figures not directly comparable.

Airlines lease a large share of their fleets, which is why EV/EBITDAR became the standard there too.

Telecom and Utilities: Capital Intensity Matters

Telecom and Cable

These businesses spend heavily on networks every year. EBITDA ignores that, so two telecoms with identical EBITDA can generate very different cash.

That's why you'll see EV/(EBITDA − Capex) alongside EV/EBITDA. It's a rough proxy for unlevered cash generation.

Utilities

Regulated utilities earn an allowed return on their asset base. So beyond EV/EBITDA and P/E, analysts look at EV/RAB (regulatory asset base, common in the UK and Europe) or price relative to rate base in the US.

A utility trading at a premium to its RAB signals the market expects it to earn more than its allowed return or grow the base quickly.

Biotech: Valuing Hope

A pre-revenue biotech has no revenue, no EBITDA, and losses. Every standard multiple is useless.

Instead, bankers use:

• rNPV (risk-adjusted NPV): forecast cash flows for each drug, multiply by the probability it passes each clinical stage, then discount.
• EV/Peak Sales: compare the company's value to the estimated peak annual sales of its pipeline.

Once a biotech becomes a profitable pharma company, it migrates to P/E and EV/EBITDA like any mature business.

How to Answer Sector Questions in Interviews

You won't memorize every niche multiple, and you don't need to. Use this three-step framework for any sector:

1. Is debt operating or financing? If operating (banks, insurers), use equity multiples like P/E and P/B.
2. Is a standard metric distorted? Depreciation (REITs → FFO), exploration accounting (E&P → EBITDAX), leases (retail → EBITDAR).
3. Is the company profitable yet? If not, move up the income statement (revenue) or switch methods entirely (rNPV).

Then confirm your numerator matches your denominator.

Practice Questions

Test yourself before your next interview:

• Why don't we use EV/EBITDA for banks?
• What's the difference between FFO and AFFO?
• Why would you use EBITDAR instead of EBITDA?
• How would you value a biotech with no revenue?
• Why would a bank trade below tangible book value?
• Why do SaaS companies trade on revenue multiples?

If you can answer each in two or three sentences using the logic above, you're ahead of most candidates.

The Bottom Line

Sector multiples aren't trivia. Each one exists because a standard metric breaks down for a specific business model.

Bookmark the table, but focus on the reasoning. When an interviewer throws you a sector you haven't prepped, walk through the framework out loud. Showing that you understand why a multiple fits will impress them far more than reciting a list.