Got asked this interview question and not quite sure how to answer it.
Holding margins constant, how much does revenue need to grow to justify 8x EBITDA over 10 years?
Size $40; EBITDA $5; EV/EBITDA 8x
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anyone??
i will give you so many SBs and venmo u $$$$ if you can explain this in a way that makes sense
needs to grow at a similar rate to competitors being valued at an 8x multiple, but suppose company grows top-line 2-3% annually, it could garnish an 8x multiple at exit if its comps are as well.
BDSM > EBITDA
.
GTFO > EBITDA
what mathematical formula could I use for growth rate?
The PV of all the cash flows (assuming EBITDA equals to Lev Cash Flows in this exercise) should equal to 40.
So in order to arrive to the formula we would have to calculate the growth rate and the discount rate, using that formula we would be able to arrive and solve the problem. And in order to do it I would just simplify and use Gordon Saphiro´s TV formula.
Does this make much sense? No. But its the best way to solve it with the given data (I cant think of any better one at least).
You need to take into account the value of cash flows, so just plug the data in the formula and solve it, quite simple but not too accurate as you are taking too many simplistic assumptions, so if he wants you to solve the growth rate needed, you will need to ask for a WACC or assumme one
PD: Not sure what you mean with your last part of "over 10 years", do you mean that the multiple keeps unchanged during those 10 years? Let me know if thats what you are looking for as I didnt fully understand the question
merci beaucoup French hardo
This is completely contingent on the comps. universe and industry growth trends. I don't really think there's a right answer
any other possible answers? would really appreciate the help
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