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How do you decide on a multiple? - Technical question (DCF)

Points)

on 1/12/12 at 4:57pm

When you're doing a DCF, a common way to project into the future is to use a terminal. One is the EBITDA multiple. Which can be something like 7x, 8x, 9x, etc.

How do bankers decide what the multiple should be (ie 7,8,9, or whatever)?

Tags:

Which ever makes the deal

JeffSkilling

(King Kong, 1,911

Points)

on 1/12/12 at 5:11pm

Which ever makes the deal look best.

Comps?

Boothorbust

(King Kong, 1,130

Points)

on 1/12/12 at 5:24pm

Comps?

Whats your question? The

Bernankey

(Gorilla, 613

Points)

on 1/12/12 at 6:08pm

Whats your question? The terminal value should just the perpetuity of cash flows in the stable growth period.

Ideally, you'd be looking at

SpacemanSpiff

(Senior Baboon, 243

Points)

on 1/12/12 at 6:11pm

Ideally, you'd be looking at how market is valuing comparable companies and/or any precedent transactions in the space

In actuality, as an analyst you'll stick in a number your VP or MD gives you

Everything above is correct.

Stringer Bell

(King Kong, 1,679

Points)

on 1/12/12 at 6:37pm

Everything above is correct. Typically we'll put together comps (prev. trans and market) for the targets peer group, calc the mean, median, max and min to arrive a multiples (usually just use the mean, but always defer to what your senior guys want to use or just use your brain / common sense in a pinch). Usually whatever multiple you take away from that could be you're base multiple for your sensitivities.

The multiples are for the 5th

CNB90

(Orangutan, 367

Points)

on 1/12/12 at 8:48pm

The multiples are for the 5th or in some cases the 10th year, so do we take the median EV/EBITDA multiple of comparables as calculated from today figures? Or some expected multiple in 5 years?

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6 Free Financial Modeling Lessons...and More.

How do you decide on a multiple? - Technical question (DCF)

Which ever makes the deal

Comps?

Whats your question? The

Ideally, you'd be looking at

Everything above is correct.

The multiples are for the 5th

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