What factor contributes to a foreign company having a higher EV/EBITDA compared to a U.S. company with similar financial metrics?

A foreign company having a higher EV/EBITDA compared to a U.S. company with similar financial metrics can be attributed to various factors, including tax rates. In general, if the U.S. company pays higher taxes than the foreign company, this can lead to a lower net income and thus a lower valuation multiple, such as EV/EBITDA.

Higher taxes reduce the amount of income available to shareholders and can influence investor perception of the company's profitability. As a result, if investors are more optimistic about the growth potential and earnings capacity of the foreign company—especially if it benefits from a more favorable tax environment—they may assign a higher EV/EBITDA multiple to that foreign company.

This higher multiple reflects expectations of future growth and profitability, which is essential for pricing the company's equity. Therefore, differences in tax burdens can significantly affect valuation metrics, such as EV/EBITDA, leading to the observed discrepancy between companies in different tax jurisdictions.