EV/FCFF multiple
Hey Guys,
I had a quick question about the EV/FCF multiple.
FCF is known to be one of the most ''useful'' tools, as it gives a very clear picture how much cash can be distributed to everyone. That is, after CapEx how much can still be given to equity holders, debt holders and others.
As this is perhaps one of the more interesting and meaningful tools, and more helpful than the Revenues/EBIT/EBITDA - how come it is used so infrequent.
I always hear about EV/Rev, EV/EBITDA, EV/EBIT and other industry specific multiples to be widely used - I was just wondering why EV/FCF is so ''neglected'' and unpopular - as for me it seems to be one of the more interesting and explaining ones.
I was interested in hearing your views on this!
Thanks in advance,
Unlmtd
Because EV/EBITDA is nice and easy to calculate. If you're doing EV/FCF, you have to take into account not just capex, but working capital changes and cash taxes. A working capital anomaly will really fuck up your multiple. Likewise with capex, you'd have to break out acquisition capex and only take into account maintenance capex, which isnt always straight forward.
Only reason EV/EBIT is used is as a proxy for EV/EBITDA-Capex (with the assumption that annual D&A for a company should equal maintenance capex) but I certainly never use it for valuation purposes.
As for EV/Rev, I tend to use it when valuing a company with negative EBITDA.
Thanks!
So it is purely an issue based on ''calculation'' simplicity?
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