Can someone explain the fundamental and mathematical difference between calculating a cash based EV/EBITDA multiple vs a GAAP based EV/EBITDA multiple? I heard this being thrown around in a conversation and I am interested to know the difference fundamentally, mathematically and when it's best to use one over the other.
Thanks guys
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EBITDA is not defined in GAAP, so its a BS comment
I've seen the use of cash EBIT multiples which simply subtact capex from EBITDA to get to an actual cash generation metric.
I read this is cash based accounting vs gaap based accounting (Accrual) EBITDA. A decent portion of businesses that get acquired in the LMM use cash accounting.
I don't see how it can make sense otherwise... Unless you think you misheard cash flow multiples, not cash based EV/EBITDA..?
Not sure if this is the case in your situation, but I have a software client that does have a "cash-based" EBITDA multiple, which is basically just including all billings rather than just the recognized revenue. Not that the other option is GAAP but perhaps just a misnomer in the question?
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