Why can you use Equity Value / Revenue but not Equity Value / EBITDA?
I understand that you don't really use equity value / EBITDA because you're comparing apples to oranges (Eq. val. is available to only shareholders while ebitda is available to all investors). But if that's the case, then why is it that you might (but rarely of course) use equity val / revenue? I don't understand how the logic lines up because I thought revenue was "available" to all investors?
I may be wrong but I have never seen equity value to revenue used by anyone. Are you sure you're not talking about EV (enterprise value)/sales?
Yes, I'm referencing the Mergers and Inquisitions guide which says, "You never use equity value / EBITDA, but are thee any cases where you might use equity value / Revenue?" And their answer is that while rarely used, it's sometimes used for large financial institutions that have negative Enterprise Values
I think you just answered your own question
But I don't get how that's allowed to use eq. val / rev when the numerator and denominator's audiences aren't consistent..
The numerator and denominator need to link up. If the denominator exclude interest expense (e.g. EBITDA), the numerator needs to available to both the debt and equity holders (e.g. enterprise value). If the denominator includes interest expense (e.g. net income), the numerator needs to be only available to equity holders (e.g. equity value).
Exactly. So how is it possible that one would ever use Eq val/ sales? Since they don't link up, right?
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