EBITDA Multiple

def. Enterprise value. The amout of money you have to pay to buy off the company, including its financial oblications (net debt)

$$\text{Enterprise Value = Equity Value + Net Debt}$$

where $\text{Net Debt = SR,LR debt + min.inst.pref.stock}-cash$

• Net Debt > 0 when firm has more debt
• Net Debt < 0 when firm has more cash

def. EBITDA Multiple.

$$\text{EBITDA Multiple}=\frac{EV}{EBITDA}=\frac{\text{Value}}{\text{Profit}}$$

⇒ Think: For two firms…

• …if the market values one firm higher [=EV is higher] than another firm,
• …even if their profit is relatively smaller [=relative EBITDA], it implies that:
• …the market thinks the firm has growth potential.

The EBITDA Multiple is a good measure of how good the operations are of a company because…

• EBITDA doesn’t deduct financing costs.
• EBITDA can compare companies in similar industries about how good their operations are.