When calculating a multiple based on free cash flow or EBITDA, which value should be used?

Using Enterprise Value when calculating a multiple based on free cash flow or EBITDA is the correct approach because Enterprise Value encompasses the total value of a business. It accounts for the entire capital structure, including both debt and equity, making it a more comprehensive measure of a company's overall valuation.

Free cash flow and EBITDA represent cash generated by the business before financing effects are taken into account. Since these metrics are operating performance indicators, using Enterprise Value reflects the value attributable to all capital providers (debt holders and equity holders) rather than being limited to just the equity portion of the capital structure.

When evaluating a company's performance through the lens of free cash flow or EBITDA multiples, it is essential to align the valuation metric with the cash flows generated by the entire enterprise, hence justifying the usage of Enterprise Value in these calculations. Other options like Equity Value or Market Capitalization would only reflect the value attributable to shareholders and could mislead analysts about the company’s operational efficiency and financial well-being.