I read a book which claimed that the EV/EBITDA multiple is not affected by changes in taxation...I understand why EBITDA is unaffected by differences in tax, but why wouldn't changes in tax affect EV?
Wouldn't a company with a higher tax have lower retained earnings and thus lower EV?
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EV = stockprice x shares - cash + debt
Usually for multiples, you use current EV divided by fwd year ebitda
More correct than the original comment, but you I would make the argument that effectively the equity value of the company (i.e. market cap) will only increase by the incremental cash from different tax rates, but on an EV basis this would be nullified as you are deducting that excess cash via net debt
You'd have to edit the equation to (EV - PV(Future taxes))/EBITDA
Trading Comps Help EV/EBITDA (Originally Posted: 09/18/2017)
Hi guys,
Wanted some clarification on a question regarding comps. So let's say a company went from having taxes to having no taxes. How would EV/EBITDA multiples be affected and why? What about other multiples?
EBITDA... Earnings Before Interest, Taxes, Depreciation, Amortization. Your answer lies therein.
/facepalm
Is EV not affected whatsoever?
Multiple should be higher.
This is what I would guess, but what is the exact reasoning behind this? Increase in EV, and exactly why/how, i.e. what part of EV increases?
What's the disadvantage/deficiency of EV/EBITDA (Originally Posted: 05/29/2011)
So many guys said the EV/EBITDA is so gd that it is independent from the capital structure, tax regime, accounting treatment, financial decision and so forth.
However, is there any disadvatnage/dificiency of the ratio? In other words, is there any advatange of PER over EV/EBITDA?
could be flattering for capital intensive companies....
Certain types of businesses don't lend themselves to EV/EBITDA. Classic examples are tech start-ups where revenue is likely a more important metric. Similarly, in many healthcare deals (pharma?) EBITDA is not the best metric to use. I imagine, though can't confirm, that oil/gas is similar as well.
dont think about P/E vs. EV/EBITDA as good vs. bad, etc. they are just different ratios that tell you different things. if a company's or a sector's earnings are meaningful, then you should certainly look at P/E to further differentiate companies (ie what you have to pay for a dollar of earnings). one could envision a scenario where 2 companies trade at the same EBITDA multiple, but one company is cheaper on a P/E basis. that is good information to know.
If you mean fundamentally then EBITDA is only a proxy for unlevered free cash flow so that's a shortcoming.
DCF quick question EV/EBITDA (Originally Posted: 05/29/2017)
Hi, Doing a DCF and was wondering if EV/EBITDA multiple for a company should be decreasing over time if they earn profit? Would the same be true for P/E ratios?
Best, First Post
Generally, your EV/EBITDA multiple will stay pretty stable because if your earnings are going up, your market cap will probably go up, increasing your EV. Same should apply to p/e ratio. If you think about earnings reports for companies, if they beat expectations usually the stock will go up due to the increase in earnings.
Precedent Transactions EV / EBITDA multiples (Originally Posted: 02/16/2018)
Is there a website where I can get EV / EBITDA transaction multiples by industry? It would be better if it were free to use. Thanks!
Read the fairness opinions for transactions in the industry you want.
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