The three most important valuation techniques - EV/EBITDA
10 important questions on The three most important valuation techniques - EV/EBITDA
What is probably the most important valuation multiple in corporate finance?
What is the formula of EV/EBITDA?
How to calculate EBITDA when it is not shown on the income statement?
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What does EBITDA measure?
What is enterprise value (EV)?
At first, this is solely the money needed to start the business. Later, equity capital and debt may also be needed. Essentially all funds together are your EV.
How is fair equity value calculated when I start from the enterprise value?
What does EV/EBITDA express?
What are the four advantages of EV/EBITDA?
- Still quite simple
- Implicitly takes the financial structure of the company into account by reducing the value that is attributed to third parties
- EBITDA is a cash-near profitability figure
- EBITDA is more difficult to influence by accounting tricks than net earnings
What are the three disadvantages of EV/EBITDA?
- In practice and on a company-by-company basis, the enterprise value is often subject to what to add to it and what not
- Usually looks 2-3 years ahead and therefore does not fully value cyclical swings
- Needs complex adjustments when taking into account off-balance sheet liabilities
What does the right EV/EBITDA multiple dependent on?
- On actual and expected growth rate of underlying value drivers.
- Cash conversion (expressed indirectly as FCF/EBIT, ROCE, asset intensity)
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