Which financial metric should be used if the numerator in a multiple is enterprise value?

Using EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as the numerator in a multiple with enterprise value is appropriate because it aligns well with the concept of enterprise value itself. Enterprise value represents the total value of a business, including not only the equity but also the debt, minus any cash and cash equivalents.

EBITDA reflects the overall operational profitability of a business without being affected by the capital structure (like interest payments and tax rates) or non-cash accounting items (like depreciation and amortization), making it a more accurate reflection of a company's core profitability.

In using EBITDA with enterprise value, analysts can achieve a clearer and more standardized measure of the company's valuation relative to its operational earnings potential. This approach allows investors to compare companies on a more apples-to-apples basis, particularly across firms with varying levels of debt and different tax situations.

Other financial metrics like net income, levered free cash flow, and earnings per share involve effects of financing and capital structure that can distort the true operating performance when linked to enterprise value, which is designed to provide an enterprise-centric view of valuation. Therefore, EBITDA is the most suitable choice when using enterprise value in a multiple.