Technical Help

Can anyone offer any insight into these questions?

If company A is a steel mill company and company B is a management consultancy firm and both
have revenue of 100 and EBITDA of 10, which company will have a higher EV/EBITDA
multiple?

Company A acquires company B and the acquisition is zero-accretive. Company B brings
in $10,000 of net income. What is the maximum amount company A could have
borrowed to buy company at a rate of 4%?

2 Comments
 
Most Helpful

I'll take a shot at Question A:

Professional services is more cyclical than manufacturing: you don't need your bankers to advise an M&A, but people do need some dough (or cars, who knows). This is on a relative scale. Discount rate wise A and B's should differ by too much.

EV: B likely has a higher EV, but lower EBITDA due to A's heavy depreciation and likely more debt and therefore higher interest expense

So B probably has a higher EV/EBITDA multiple. 

Let's say A is a manufacturing company and B is a professional services company. A is asset-heavy and B is asset-light. The profit margin is likely higher for B. When you calculate FCFF, B has a higher net income to start with. When you add back depreciation, which is a big part of company A, you see a bump in FCF, and then you need to subtract CapEx, which consists of buying new equipment and maintaining current equipment. This is higher for company A, and almost 0 for company B. Then you subtract ONWC, which is likely higher for company A because as a professional services company I just don't see why you need too much NWC (investment banking is also professional services). 

Take this with a grain of salt. I can be completely wrong because I mainly work with healthcare companies, and I pay attention to tech, not business services or industrials.

If you have Bloomberg, just pull comps and check industry average or median. 

I believe the above analysis is correct? 

EBITDA Multiples by Industry | Equidam

Persistency is Key
 

Repellat eum voluptate quia commodi officiis voluptatem et et. Eius est odit enim saepe et. Voluptatem qui et alias sapiente sint. Expedita tempora provident debitis non.

Get Jiggy With It

Career Advancement Opportunities

June 2026 Investment Banking

  • Evercore 01 99.4%
  • Moelis & Company 01 98.9%
  • JPMorgan 01 98.3%
  • Guggenheim Partners 01 97.7%
  • Morgan Stanley 07 97.1%

Overall Employee Satisfaction

June 2026 Investment Banking

  • Moelis & Company No 99.4%
  • Morgan Stanley 02 98.8%
  • Evercore 01 98.3%
  • BMO Capital Markets 12 97.7%
  • Banco Santander 01 97.1%

Professional Growth Opportunities

June 2026 Investment Banking

  • Evercore 01 99.4%
  • Moelis & Company 01 98.9%
  • Morgan Stanley 05 98.3%
  • JPMorgan No 97.7%
  • Goldman Sachs 02 97.1%

Total Avg Compensation

June 2026 Investment Banking

  • Vice President (14) $434
  • Associates (44) $258
  • 3rd+ Year Analyst (8) $210
  • 2nd Year Analyst (22) $179
  • Intern/Summer Associate (13) $156
  • 1st Year Analyst (79) $150
  • Intern/Summer Analyst (73) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
kanon's picture
kanon
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
Betsy Massar's picture
Betsy Massar
98.9
6
dosk17's picture
dosk17
98.9
7
DrApeman's picture
DrApeman
98.9
8
GameTheory's picture
GameTheory
98.9
9
CompBanker's picture
CompBanker
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”