EV/UFCF & Equity Value/LFCF...Why?
When would you use a multiple i.e. EV/UFCF & Equity Value/LFCF rather versus your usually EV/EBITDA or Equity Value/Net Income? What does the multiple tell you?
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Well if you wanted to better represent the FCF items that EBITDA excludes (WC, capex, so forth), wouldn't that be a reason to use EV / UFCF? Different companies, even within the same industry, can have different capex needs so the default is to neutralize capex. If you have a reason for including stuff like capex, then it could make sense to use UFCF despite it being a less common metric than EV / EBITDA. Like if you're trying to make sense of how effectively cash is being converted.
So, for example a company is spending half as much on Capex but is growing at the same rate as comparable companies, then it would make sense to use EV/UFCF to incorporate how much the companies are converting revenue to cashflow while incorporating Capex spend, right? This would paint a better picture rather than EV/EBITDA, right?
Not exactly sure on your question as it relates to painting a picture of "growth."
To clarify, I am thinking about this in terms of how much you would pay for a business. Like if comps are suggesting 10x EV/EBITDA and you find out it has significantly more capex or WC using up cash, it may not make sense to pay 10x the EBITDA for the business.
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