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.
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