Treatment of Associates
I have a technical question that I would appreciate your input on.
What is the correct way to treat associates when looking at multiples? This is specifically important when looking at trading comparables but also on individual basis.
For example, if I look at a company that reports EBIT and EBIT including associates and need to derive the EV/EBIT multiples, how should I think of treating the Enterprise Value? What should I do with EV and EBIT in order to have a correct multiple?
Does the Market Value already capture the value of the associates held in a company? Looking at P/E the earnings would include any value from associates so I would assume that the market value of the company also includes the value of the holding and hence the comparison is "apples-to-apples"
Does the way you look at associates change for each EV-multiple, eg EV/Revenue, EV/EBITDA?
Thank you
You deduct investment in associates from EV.
EBITDA doesn't account for the income from the associate so you have to strip the associate out of EV for an apples-to-apples comparison.
What if your EBIT includes income from associates and this is a significant number? Do you then add the value of your associates to EV?
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