EV/EBITDA - future net debt or current
Was having a discussion about this today and wanted to get everyone's thoughts. If you were using a forward EBITDA beyond NTM, let's say 2020 - would you use today's net debt or 2019 net debt? This is in the context of valuing a stock
The argument for using 2019 is that in 1 year, you would be applying a forward multiple on forward numbers (2020), so to get the stock price a year from now, you would use the 2019 net debt. This makes a difference obviously if the company is deleveraging as using current debt on a NTM + x time frame understates the potential return?
However, I feel like conventionally I've seen more people use current net debt in this situation - would appreciate any thoughts
You do realize a multiple — whether it’s 5x 2025 earnings or 12x today’s earnings — is just a simplified DCF, right? It’s all in PV terms, so use the present value of debt.
net debt period should match ebitda period
Thanks for the responses - seems to be two conflicting views above?
If you use current net debt, how do you reflect the increase in equity value in a deleveraging scenario?
Again, your capitalized EBITDA (serving as a proxy for cash flow) is the PV of all the future cash flows you’d be using to pay down debt...
You can pay down your debt $10 a year for 5 years or $40 today (or whatever the PV of $10 for 5 years running is at your WACC). Same thing.
Minima eos nostrum officia dolorem. Aut aut qui ab cumque. Eum vero reprehenderit cum cumque magni quia.
Qui at itaque incidunt consectetur est voluptates. Porro eius similique tempore.
Beatae officiis cum pariatur ratione delectus non nihil. Eligendi dicta aut eveniet non optio possimus numquam atque.
Voluptas vel excepturi delectus sit ut quis. Sint velit quod et cupiditate. Nihil quibusdam in explicabo quis sunt et. Repudiandae maxime sit est. Iste nostrum qui tempora in fugiat magnam assumenda sit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...