EBITDA multiple Changes
Let's say the corporate tax rate drops from 21% to 15%. How does that affect a company's EBITDA multple? Would the EBITDA multiple go up? Why?
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Obviously no affect on EBITDA.
EBITDA multiple I would argue increases slightly, but I don't think you can quantify without more info. If you were to run a DCF, enterprise value would be higher because of lower cash taxes. Then dividing that enterprise value by EBITDA would result in a higher implied multiple.
Despite lower cash taxes, shouldn't a lower tax rate also increase the WACC through a higher CoD and levered beta? So the final effect on EV would be unknown?
That's valid and I hadn't thought of that. You may want to confirm if there is a normal range of debt or none/small amount. As long as you call out both to an interviewer I think you would pass the question.
How would the CoD increase? Wouldn’t it be easier for a firm to pay back debts with less taxes?
Brain fart: it doesn't increase EBITDA. It increases the EV/EBITDA multiple because of an underlying improvement in free cash flow growth.
Mathematically, no change. Theoretically, would be slightly higher, as EBITDA multiples show high correlation to FCF growth.
You could also appeal to this question aside from using a DCF (which is well-commented upon above and would indeed increase the multiple) by looking at EV from an Equity + Net Debt point of view. You'd expect lower takes to increase market cap which increases EV and the multiple
The actual EBTIDA is unchanged but the EBITDA margin increases, thus increasing the EBITDA multiple used for the business because high-margin businesses are awarded high multiples. Everyone overthinking the shit out of this is hillarious.
lol dou know what EBITDA margin is?
??? That’s some FTX level accounting
After he shits on the lincoln dude, drops this nugget lol. Guess that’s what doing no deals the whole year does to you
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