Implied EBITDA Multiple With DCF
This is a two-part question related to DCF's, Valuation and Debt.
Background: I did an EBITDA Multiple valuation scenario analysis, less debt for the equity value. Then did a DCF to cross-check. The two are nowhere in the ballpark...then I dook out net debt out of the valuation and it aligned very nicely.
My question is...
1. When doing a DCF and connecting to the implied EBITDA Multiple of a privately owned company, looking for the equity value, I know you are supposed to take out the debt, or is it the net debt (debt-cash)? Which one is it?
2. If the EBITDA x Multiple and the DCF are way off, what would be the best way to think through the mistakes in the model?
Thank you in advance for the help.
Regards,
Michael
Net debt. Enterprise Value = Equity Value + Debt & Equivalents - Cash & Equivalents
A difference between multiples-valuation and DCF-valuation does not necessarily mean there is an error. This simply means the market is valuing a company greater/lesser than the intrinsic value of its future cash flows. Of course, your assumptions would be the drivers for DCF-valuation differing from multiples-valuation, irrespective of whether or not they are "correct".
Fuzzy Stocks, thank you very much for your explanation, I appreciate it very much.
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