2 companies have same revenue but A: EBITDA =20; B:EBITDA=40, which one to go for?
Interview question:
2 companies have the same revenues, but different EBITDAs
A: EBITDA margin of 20%
B: EBITDA margin of 40%,
They are trading at the same EBITDA multiple, which company would you purchase and why?
Should I be indifferent as I am paying the same amount of money per $1 of EBITDA earnings?
Open ended question.
You could say markets are efficient so it doesnt matter since your reward will be proportional to each company's risk.
Or if you could say markets arent perfectly efficient, but ebitda margins are almost certainly priced in already and therefore you cant choose.
You could also pick one, but i think its more difficult than not picking one.
As revenue growth increases you will see greater growth in absolute ebitda for the company with the higher ebitda margins; therefore company B is the correct answer assuming all else is equal.
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