If I give you two companies with the same revenues, but one has an EBITDA margin of 25% and the other has an EBITDA margin of 40%, and they are trading at the same EBITDA multiple, which company would you purchase and why?
How does a better brand impact the financial statements?
What ratio can you use to compare companies without earnings?
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Taking a stab here,
It depends on whether you can realistically strip out some of the COGS and SG&A expense from the first company, if so you could realize a gain upon exiting from your investment at the same EBITDA multiple. If not, go for the second company as it appears to be in a stronger cash flow position based on using EBITDA as a proxy for cash flow before the effects of the company's capital structure.
It depends on the accounting standards you are applying. Typically you having a strong brand will have no effect because internally generated brands such as your own brands cannot be recognized as intangible assets under IAS 38.
Compare in what way?
My version:
If they are in the same industry, see industry average EBITDA margins to identify which one has more potential for operatinal improvements (basically, if average margin is above 25%, buy first company, if below - don't buy any of two)
If they are in two different industries, see industry average multiples to identify which one is (more) undervalued
From accounting perspective, see post above. From economic perspective, strong brand usually allows to achieve better margins due to higher pricing power, so the answer can be - higher margins with stronger brand
If you mean comparing valuation, you can always try non-earnings-based ratio like price to book value, price to CF, price to revenues or, less likely, use precedent transaction apprach.
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