Why Can You Use Equity Value / Revenue But Not Equity Value / EBITDA?
isn't revenue or EBITDA available to both debt & equity investors? so if you can use equity value / revenue, why not ebitda?
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Who said you can use equity value / revenue? But hey, maybe in these markets, even that could make sense.
its in BIWS 400 interview questions, they said you could use equity value/revenue but not equity value/ebitda
Think Equity Value / Rev is used when a company or the sector in general has negative EBITDAs
Thanks, I guess I'm confused abt 2 things
a) if you could use revenue, why not EBITDA, because they are both available to debt and equity holders right?
b) if the reason equity value is used instead of EV, due to EV being negative through a large cash balance, why would Revenue be positive and EBITDA negative if the company has a large cash balance?
you're right - EBITDA/rev is available to both debt and equity investors, thus the numberator also has to be available to both debt and equity investors - hence EV; EqV is only available to equity investors
apples to apples
B) Is an easy one, although hypothetical. You could have a publicly traded company that raised a large sum of equity to overcapitalize the balance sheet. For numerous reasons, the stock price tanks (law suit, patent infringement, product defect, proposed accretive growth/M&A initiative kiboshed, etc.). You could then have enterprise value < market equity value, all things equal. This has to do with just financing so your company can very well be revenue positive but EBITDA negative. I’d have to guess it’s a growth stage, possibly tech firm.
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