Got this question in an interview the other day

Company has EV/Sales of 2x and EBITDA margin of 10%. What is EV/EBITDA multiple?

Anyone?

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I would've ended the interview right then and there

Seems like the only thing you can say is EV / EBITDA > 2x

20x

Sales = 10 * EBITDA

EV/Sales = EV/(10*EBITDA)

10* EV/Sales = EV/EBITDA

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Great question:

Step 1: Assume EBITDA is \$2 million -> \$2 million / 10% EBITDA Margin = \$20 million Sales

Step 2: \$20 million Sales * 2x EV/Sales multiple = \$40 million EV

Step 3: \$40 million EV / \$2 million EBITDA = 20x EV/EBITDA multiple

Hope this makes sense for future references

You can (and probably should) always plug in numbers in these questions.

Assume \$100 EV, which tells you \$50 of sales (2x EV / Sales).

\$50 of sales at 10% EBITDA margins means \$5 of EBITDA

\$100 EV / \$5 EBITDA is 20x.