Multiples question
Got this question in an interview the other day
Company has EV/Sales of 2x and EBITDA margin of 10%. What is EV/EBITDA multiple?
Anyone?
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I would've ended the interview right then and there
Seems like the only thing you can say is EV / EBITDA > 2x
20x
Sales = 10 * EBITDA
EV/Sales = EV/(10*EBITDA)
10* EV/Sales = EV/EBITDA
This is correct. It’s pretty straightforward math really.
10/10 username. Tom Dwan = EBITDA Daddy
Great question:
Step 1: Assume EBITDA is $2 million -> $2 million / 10% EBITDA Margin = $20 million Sales
Step 2: $20 million Sales * 2x EV/Sales multiple = $40 million EV
Step 3: $40 million EV / $2 million EBITDA = 20x EV/EBITDA multiple
Hope this makes sense for future references
You can (and probably should) always plug in numbers in these questions.
Assume $100 EV, which tells you $50 of sales (2x EV / Sales).
$50 of sales at 10% EBITDA margins means $5 of EBITDA.
$100 EV / $5 EBITDA is 20x.
What type of firm was this for? Was it for EB?
You guys think this is difficult?
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