Two identical companies — one finances assets with capital leases, the other with operating leases. Which is the better investment based on EV/EBITDA?

Answer

Pre-ASC 842 historical answer: the capital lease company would appear to have a LOWER EV/EBITDA multiple because depreciation + interest from capital leases sit BELOW EBITDA, while operating lease expense sits IN EBITDA. So capital lease company's EBITDA is artificially higher → lower multiple.