Hi All, I am estimating the enterprise value of a private company using the market approach and more specifically the EV/Ebitda and EV/Sales multiples(not transaction). My first question is; do i have to adjust the enterprise value for Discount for lack of Marketability since i am using multiples of traded companies? or is this discount only applicable when i am calculating the equity value? also the subject company has significant creditors as at the valuation date and generally its working capital is not normalised. Do i have to make an adjustment to the EV to account for the abnormality
26 Mar 2021
Moderator note (Andy): this is a post from 2010 but squawkbox suggested its relevancy remains and can be very useful for those going through FT & SA interviews. "Don't beat it to hell because it's missing some small details, but it's good for what someone will need in the "hotseat" during the technical part of the interview". Distinctions between EBITDA, Operating Cash Flow and Free Cash Flow Noticed EBITDA has been a common source of confusion. I hope this helps anyone with SA or FT interviews coming up. I left out some of the minutiae to keep it as relevant as possible. Calculating EBITDA
19 Jan 2013
Interview question I got--Why would two similar companies, same industry, same growth prospects have different ebitda multiples? What about different P/E multiples? P/E or EV/EBITDA Multiples for Similar Companies When looking at two companies in the same peer group, with similar profiles and the same growth prospects - it is natural to assume that they would trade at the same multiple of earnings. However, this is not always the case. The following are some factors that could cause the multiple to be different: One company is an acquisition target Company is in M&A process Companies have
29 Mar 2018
Monkeys - which of the two approaches are you using to calculate EBITDA, top down or bottom up? What line of work are you in? I'm in corporate banking and have always gone the top down route (I.e. Revenues - cogs - opex +/- non-cash and non-recurring items embedded within the aforementioned categories). I now work with a few folks who are used to the bottom up calc and rooted in their old ways. In my opinion top down is a cleaner calculation that requires less adjustments given you don't have to worry about adding back all the other income / expense, unusual & infreqent line items below
27 Jun 2017
Fairly simple exercise here: How do YOU pronounce EBITDA, phonetically? I'm partial to "e-bit-dah" with a an emphasis on the "E" and "dah" being pronounced almost like the Russian word. How Do You Say EBITDA? Consensus among our users is that EBITDA should be pronounced as:
The below video demonstrates several different "correct" pronunciations. Depreciation and Amortization Pronunciation Amortization is typically pronounced the following way: Read more about amortization. Depreciation is typically pronounced the following ee-bit-dah
21 Aug 2015
Hello, Could anybody perhaps offer insight on some of the more nuanced tricks private equity firms use to create value in their portfolio companies? For instance, do they sell all real estate and lease instead, try to reduce underfunded pensions in some way, do other accounting / finance tricks to increase exit multiples? Thnx for all your inputs!
16 Apr 2017
Question on how REIT rental revenue that been earned but not paid. I am underwriting a borrower that has seen ~90% rental collections during the pandemic. The proposed definitions for EBITDA and NOI in the credit agreement adjust out "non-cash" items. My question though is whether non-cash items would just be referencing typical adjustments such as straight-line rent or if it would look through rental revenue and adjust out amounts not received to get to a true cash figure. The borrower is only using the receivable approach for recognizing revenue if a formal deferral agreement has been signed
17 Sep 2020
Currently working on valuing a very indebted retail company for potential takeover and having serious troubles. Operating Income is negative, EPS is negative, Net Income is negative, EBITDA is negative and jumping all over the place, Retained Earnings is negative (and growing), Cash & CE is negative, Revenue is shrinking. Done some public comps so far (this has gone reasonably well, quite a few similar companies), tried to put together a DCF but it just throws back implied share prices of 0 for every sensitivity value. So yea, how do you value a company where almost everything is negative other than just public comps or saying "its worthless". Any help would be GREATLY appreciated! Thanks
15 Dec 2011
When valuing a company through the comparables methodology, why do we apply the transaction multiple result to LTM EBITDA and trading multiples result to forward EBITDA?
30 May 2019
So a colleague and I were bored at work and started brainstorming different phrases that EBITDA could stand for. The best we came up with was: Everyone's Busy If The Director Asks Can anyone else think of a funny / applicable definition for this ubiquitous finance term?
28 Jun 2018
I need the ratio for a quick and dirty calculation, if someone can provide a ball park number that would be great. If not, directions to sources (Chinese equivalent of google finance/EDGAR etc.) where I can get info to build my own comp sheet is fine too. Thanks.
21 Feb 2011
Obviously the difference between the two multiples is D&A, so for a company/industry with lots of D&A, should you use EBITDA or not? I could see it being argued either way--i.e. if D&A is a large factor, don't use EBITDA because that ignores an important aspect of the company's financials...or USE EBITDA because you WANT to ignore the large impact that D&A has on the business. EBITDA vs. EBIT to Value a Company Generally speaking, it makes sense to use EBIT multiples when D&A is a large factor for a business. This is usually true for asset heavy businesses such as telecommunications or
30 Sep 2011
Noob intern here arguing with other noob interns. So us noobs understand that you simply add interest, taxes, depr. and amor. back to net income to get EBITDA. However, we're looking at a company's income statement and there's income tax along with payroll taxes under operating expenses. My argument is that we only have to add back income tax because payroll taxes are operating expenses that have to be paid regardless. However, the other interns are suggesting that we add all types of taxes. So WSO... which one is it? Do I Subtract Income Taxes and Payroll Taxes from EBITDA? Income taxes will
23 May 2014
Hi guys, Could someone please help explain the difference of when to use EV/EBIT vs EV/(EBITDA-capex)? I know you generally use EV/EBIT for companies with high capex, why though? Because of the high D&A, but don't you want to account for that? like EBITDAR for airlines, gaming/casinos, etc? I guess I am generally confused on capex here. Is the capex here MCX? What's the thought process of capex's relationship with D&A? And what about growth capex? I am just starting to learn this, so if someone could be patient and explain this clearly, I would really appreciate it!! Thanks in advance. :)
29 Jun 2013
I am working on the factory financial model. Therefore, depreciation costs of the Plant and Equipment are included in COGS, as these fixed assets are used in the direct production of the inventory. My question is - as far as the company owns only assets that are used in production (and no other administrative buildings/equipment) and has no amortization costs, will EBITDA and EBIT of this company be the same? Or you can formulate this question the other way - while building Income Statement, should I include depreciation costs in COGS or after EBITDA (to arrive at EBIT)? Thanks in advance
13 Sep 2016
Hey guys I am just a little confused why EBITDA is used so much? I understand it may be appropriate to ignore depreciation charges when valuing certain companies but why would you ignore interest and tax payments? These charges are real cash outflows that cannot be avoided so I am curious what the value of EBITDA is?
20 May 2011
I dont really get EBITDA. It is earnings before all that so I assumed that it contained D and A. but if it excludes D and A, how can we subtract D and A to get Ebit? Wouldnt that be subtracting a non existent thing? Thanks!
21 Jan 2012
Hey gurus, Why do people in Wall Street look at EBITDA all the time when this figure doesn't include a lot of deductions? This figure just looks at the income from operation, but what if the deduction takes out a large chunk of the operating time? Can you say that the company is still doing good?
16 Nov 2010
How exactly do you determine an appropriate EBITDA exit multiple for a given firm. Obviously you look at comps, but where exactly does one derive the exit multiple from?
05 Apr 2008
Hi guys, I'm trying to learn some basic IB technicals and was really hoping for help with a few concepts please: 1. Isn't it better to value a company using EBIT rather than EBITDA because EBIT accounts for DA which is significant expense on the income statement? 2. Do people in investment banks sometimes value a company by applying a multiples to EBIT rather than EBITDA? 2. When should you use P/E, EV/EBITDA and EV/EBIT multiples? 3. If you multiply EBITDA by a P/E multiple, would you still get the Enterprise Value or would you get equity value? Thank you!
11 Nov 2017
I'm working one morning and a friend of mine from when we were in banking (he's in PE, I left PE for a startup) sends me a note with a subject that says "Which banker do you think I was behind this morning?" I opened the email and there's just a picture. I literally fell on the floor from laughing so hard. Best vanity plate I've ever seen. ![#Vanity][#Vanity] [#Vanity]: http://bit.ly/EBITDA_Plate
13 Apr 2017
hi all, quick question... why do some companies trade at higher EBITDA multiples than others? for instance, TMT is supposed to be the highest, while something like industrials generally trade at 4x-6x also, ive noticed that companies with higher ebitda margins trade at higher multiples... why is that? thanks.
22 Aug 2009
I don't have access to bloomberg. Can someone PLEASE look up and tell me the Forward EBITDA and/or Forward EBITDA Multiple for Tiffany's co. -TIF , Guess co. -GES and Ralph Lauren -RL Thanks!
08 Dec 2010
If I know a company was acquired for 8x TTM EBITDA recently, does this mean that the company's equity was purchased for 8x TTM EBITDA, or does the 8x refer to the company's EV, from which I'd need to back out the debt and cash to arrive at the price paid for the equity? Many thanks!
21 Nov 2012
I'm from a non-finance background, and recently started learning accounting/valuations...this may sound like a stupid question, but if assets = liabilities + shareholder's equity, and lets say the stock price of a firm skyrockets for some reason, then EV will also skyrocket, and the right hand side of the equation will increase...but there has not been any real change in the assets of the firm right? I mean just because the stock price goes up does not mean the company gets more cash or any other type of asset...am I missing something here? how does the asset side of the equation account for a
24 Aug 2010
Bubble Gum Co.'s operating profit is 5,000. It has a litigation charge of 1,000 in SG&A. D&A is 500. What is EBITDA? I thought the answer would be $4,500. EBIT or operating income = Revenue -Expenses so $5000-$1000 of litigation expense. and then add D+A which would be $4000+$500=$4,500 turns out the correct answer is $6,500. Any one care to explain?
26 May 2017
Have you ever wondered how investment banks or financial advisors calculate a firm's value exactly? In order to evaluate company X during an M&A transaction, a peer group of comparable companies (Company A and Company B) have to be selected. Subsequently, various key performance indicators have to be calculated in order to relate them to the firm's value. This will give you a multiple at which the companies in the peer group are traded (in relation to their performance)
28 Oct 2012
Hey, I know it is easy to fluff up anything in a resume or cover letter. ie shredding paper as an intern: "regularly maintaining corporate security process" (you all know what im talking about) anyway, Im interning in M&A now and want to know if reporting deal size's I worked on is what recruiters are looking for. If so, should I report on my cover letter something along the lines of: "worked on (x) number of deals ranging in $-$$ EBITDA " also, what numbers should I be listing, EBIT, EBITDA, Sales, Net Income etc. thanks for any help you guys can offer and if you have any examples thats appreciated too!
02 Mar 2011
So, I'm working on a report for my school's investment club and got most of my data from a Bloomberg terminal. After realizing I needed a few more numbers while already back in my dorm, I logged on to ThomsonOne. Many of the numbers are different between the two services for apples to apples comparisons such as EBITDA shown annually. Which data set should I use?
06 Feb 2013
Hello, How would you compute historical EV/EBITDA multiples for a listed company in order to compare them with the actual multiple? Let's say the current date is 31 Dec. 2011, the company fiscal year ends on 31 Dec., hence to compute the actual 2011 multiple I use the market capitalization and reported EBITDA as of 31 Dec. 2011. How do I compute the historical EV/EBITDA mulitples for 2010? [Answer 1] I use the EV and the EBITDA as of 31 Dec. 2010 [Answer 2] I use the EV as of 31 Dec. 2011 and EBITDA as of 31 Dec. 2010 [Answer 3] None of the above Thanks in advance
02 May 2012
I've noticed that there some conflicting formulas for FCF (unlevered), which one is correct? Start with NI: FCF = NI + D&A - change NWC - CapEx Start with EBIT: FCF = EBIT - taxes + D&A - change NWC - CapEx These seem to be conflicting because interest is subtracted to get NI, while interest remains in EBIT. I believe that interest(1-t) should be added back to the first formula because interest expense is not to be included in FCF, is this correct? Then, is Levered FCF = FCF - interest expense? I am interviewing right now and am confused. Thanks for any help!
16 Sep 2010
I am working on the factory financial model. Therefore, depreciation costs of the Plant and Equipment are included in COGS, as these fixed assets are used in the direct production of the inventory. My question is - as far as all the fixed assets company owns is just an equipment that is used in direct production of the products (no other administrative buildings/equipment) and there are no amortization costs, will EBITDA and EBIT of this company be the same? For instance: SALES: 100 - COGS incl Depr: 80 ------------------------------ GROSS Profit: 20 - SG&A: 5 ------------------------------
13 Sep 2016
Hi all, Can someone please clarify few questions about multiples ? 1. How is LTM EV/EBITDA (P/E etc) calculated ? Suppose you are in May 15th 2010. Latest published quarterly results are in March 31st 2010 and annual 2009. How exactly do I get last twelve months EBITDA ? 2. Same question about forward 12 months EBITDA. 3. Same question about EV/EBITDA 2011 4. How do you calendarize ? Say you are in May 15th. The company's FY is March 31st. Please elaborate. Thanks, really appreciated!
18 Apr 2010
Do we use an EBITDA figure that has been adjusted for one-time, non-recurring items in the DCF calculation? If not, where do these adjustments go? Much appreciated.
27 Aug 2014
Fellow monkeys, I was wondering if anyone knew how to calculate IRR if given EBITDA, Revenues, and Expenses for say years 5,6 and 7 of a certain project, with a terminal value of 1 year ebitda. Does anyone know the equation or how to do this in excel? I figured EBITDA would just be used as cash flow in the equation, but was unsure of how revenues and expenses will come into play. Thanks, any help would be appreciated.
30 Apr 2009
I am working on valuing a private video-compression technology company, and wanted to know if the companies in this area are valued based on their revenues or more based on EBITDA? In other words would a buyer place more value on the revenues or on the ebitda? Most of the smaller similar sized comps have negative earnings. Thanks for any insight that the experienced folks on WSO can provide.
10 Oct 2008
EV / EBITDA is one of the most commonly used financial ratios when valuing a company, used in conjunction with EV / Revenue and P/E. In essence, it is the measure of the true value of a company (EV) in relation to the profitability of the company (EBITDA). EV / EBITDA is written as a multiple and takes the form of something like 5.3 x. Due to the fact that EBITDA is used, this metric ignores capital structure (how the company is financed) and therefore can be used between companies regardless of their Debt / EBITDA ratios. EV / EBITDA is taken in terms of financial years (after calenderization
30 Nov 2011
If there are two companies with same industry, same region, similar cap structure, Wacc/discount rate, same capex, working capital. One has a higher margin on its sales, one has a lower margin on its sale. Which would be trading at a higher EBITDA multiple if their EBITDA is the same? I'm trying to think of it intuitively, since one has a higher margin on its sale, its more efficient right?
07 Feb 2014
Hi Guys, Looking at a bank book, but am stuck on a term - Can anyone help me quickly on the difference between ebitda and property ebitda? Thanks
20 Sep 2012
EBITDA stands for Earnings Before Interest, Tax, Depreciation & Amortization and is one of the most commonly used indicators of the profitability of a firm. The EBITDA calculation is Operating Income + Depreciation + Amoritzation + Stock-Based Compensation. EBITDA is a popular metric used for comparing companies, particularly with an LBO. The most common multiple using EBITDA is: Enterprise Value / EBITDA
30 Sep 2011
What determines whether an industry uses the EBIT multiple versus the EBITDA multiple? I've heard that for capex heavy industries, EBIT is used more often since the depreciation in part covers the capital expenditures. However, woudldn't it be better to use an EBITDA - Capex multiple in this case? When is the EBIT multiple better than the EBITDA multiple?
21 Sep 2009