Hi guys,
I am an intern in M&A and have some questions regarding enterprise value and the calculation of valuation multiples.
I got taught that enterprise value stays always the same (I forgot the exact formulation) in calculating the multiples. Why is that? I mean the factors in the enterprise valuation do change right? E.g. unfunded pensions or general net debt differ year by year, so why is the EV the same? I got the task to calculate the multiples for a given peer group (2 years historicals and 2 years forward). However, I calculated the EV for every year which was obviously wrong. Do I take the same EV (todays EV is the reference?) to maintain comparability or because the EV is always the same? Or due to which reason?
One associate told me something like "the market prices every future action of a company into todays price so EV stays the same". I am just confused because as a student you learn stuff like the EV to equity bridge with the different factors which change yoy.
Would be great if you can help me!
Thanks
Idk what you mean by it staying the same. It changes daily due to equity market changes. The balance sheet items get reported and updated quarterly. If I’m comparing companies then I use yesterday’s close for all companies. If I’m looking for a history then I’ll pull historical EVs
Your ask is a little unclear to me but let me take a shot at how I interpreted it- you're higher ups are looking for EV/EBITDA multiples for the prior two fiscal years, current fiscal year, and the two projected fiscal years? I've had MDs do things differently when looking at historical multiples, but in your case, you would take the current fiscal year EV and divide by the prior two fiscal year's and the next two fiscal year's earnings. COVID affected many industries significantly, so the MD is wanting to see what the multiple on historic and projected earnings would be on today's EV. Hope that helps
I think you mean that changes in financing do not change EV. Other things do change it.
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