Problems with EV/EBIT vs EV/EBITDA
Dear all WSO users,
I am a sophomore student currently doing a valuation for US automobile industries stocks (say GM, TSLA, Ford etc)
I am using two ratios for multiples variation. 1) EV/EBITDA 2) EV/EBIT.
However after my calculations (not sure if they are right or wrong), the two ratios provide different opinions - one says overvalued, the other says undervalued, when comparing to the industry average.
So I am curious and trying to find out is it possible that the two ratios can provide opposite opinion and if yes, what could be the reasons.
That tells you about the firm's D&A relative to the industry. If EBITDA says its overvalued, and EBIT says its undervalued, then the difference is accounted for in D&A. Look more into that for your company.
Also--make sure to look at revenue multiples. They do some stuff too
In general though, you're looking at a range of possible valuations as opposed to one concrete number
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