Introduction
This article synthesizes the sector-specific valuation frameworks covered in the preceding articles into a single reference. The core message is simple but critical: the industry determines the methodology, not the other way around. Applying EV/EBITDA to a bank, a pre-revenue biotech, or a mining company produces meaningless numbers. The first analytical step in any valuation is identifying which frameworks are appropriate for the specific business.
The Decision Framework
| Industry | Primary Multiple | Intrinsic Method | Why Standard EBITDA Fails or Is Insufficient |
|---|---|---|---|
| Most industrials, consumer, services | EV/EBITDA | DCF (UFCF) | Standard approach works well |
| Technology / SaaS | EV/Revenue, EV/ARR | DCF | EBITDA often negative for high-growth companies |
| Financial institutions | P/TBV, P/E | DDM | Debt is an operating asset; EBITDA not meaningful |
| REITs / Real estate | P/FFO, NAV, cap rates | NAV from property DCFs | EPS distorted by non-cash depreciation on real estate |
| Oil & gas (E&P) | EV/EBITDAX, EV/reserves | Reserve-based NAV, PV-10 | Earnings swing with commodity prices; reserves are the asset |
| Mining | P/NAV, EV/resource oz | Mine-level DCF (NAV) | Depleting assets; mine life determines value |
| Healthcare / Pharma | EV/EBITDA (commercial), EV/Revenue (biotech) | rNPV for pipeline, SOTP | Pre-revenue pipeline requires probability-weighted DCF |
| Industrials / Cyclicals | Mid-cycle EV/EBITDA | DCF with mean-reversion | Trailing EBITDA at peak or trough is misleading |
| Retail / Consumer | EV/EBITDAR | DCF + unit economics | Own vs. lease distorts standard EBITDA |
| Media / Entertainment | EV/EBITDA, EV/subscriber | SOTP (streaming + legacy) | Diversified conglomerates need segment-level valuation |
| Utilities / Infrastructure | EV/EBITDA, P/E, EV/RAB | DDM | Regulated returns make DDM reliable; bond-proxy dynamics |
Three Principles for Methodology Selection
Principle 1: Match the metric to the business model. The financial metric in the denominator must capture what drives value in that specific business. For a SaaS company, recurring revenue is the value driver (EBITDA is negative). For a bank, the book value of equity is the value driver (EBITDA is not meaningful). For a mine, the mineral reserves are the value driver (current earnings are commodity-dependent).
Principle 2: Always triangulate. Even sector-specific methodologies should be cross-checked. A mining NAV should be compared against EV/EBITDAX comps. A biotech rNPV should be compared against EV/Revenue comps for similar clinical-stage companies. A utility DDM should be compared against P/E and EV/Rate Base. No single method is sufficient, even when the primary method is well-suited to the sector.
- Sum of the Parts (SOTP)
A valuation methodology that values each business segment or asset category independently using the methodology most appropriate for that segment, then sums the individual values to arrive at total enterprise value. SOTP is used when a company operates across multiple sectors where different valuation approaches apply: a pharmaceutical company might be valued as the sum of its commercial portfolio (EV/EBITDA comps), its clinical pipeline (rNPV), and its consumer health division (separate comps). SOTP is also essential for evaluating conglomerate discounts and activist situations where the breakup value may exceed the trading value.
Principle 3: Understand why the standard approach fails before applying the alternative. Knowing that "banks use P/TBV" is not enough. You must understand why EV/EBITDA fails for banks (debt is an operating asset, not financing) to apply the alternative correctly and to explain your reasoning in an interview or client presentation.
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