Using EBITDA multiples is just one of many methodologies valuation experts consider when they value positive cash flow businesses. Whether EBITDA multiples are based off the trailing 12 months (TTM) EBITDA or the forecasted EBITDA, this approach has been widely used to value both private and public companies
List of Links' Perspectives
- EBITDA Multiples | February 2022
- EBITDA Normalizations | October 2021
- Links Capital’s Perspectives | EBITDA and Business Valuation | April 2021
- Preparing Your Business to Sell | January 2021
- Links Capital’s Perspectives | Communicating with your Bank | October 2020
- Raising Capital During the COVID-19 Crisis | March 2020
- M&A Advisor’s Changing Environment
As discussed in a previous newsletter, EBITDA is a widely used proxy for the cash flow of a business and as a valuation metric for comparing businesses. Non-cash items such as depreciation/amortization, along with income statement expenses of interest and corporate taxes, are added back to net income to arrive at EBITDA.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization, it is a widely used proxy for a business’s cash flow and when multiplied by EBITDA market multiple, can determine the market valuation of a business.
Using EBITDA for valuation purposes, non-cash income statement items such as depreciation/amortization, along with interest expenses and corporate taxes, are added back to the net income to calculate EBITDA. EBITDA allows for the comparison of companies without the concern of different types of capital structures (lower versus higher levels of debt), differing tax rates or varying depreciation schedules on capital assets.
1 Page Template- Transaction Planning
When shareholders decide to sell their company, they must have a strong understanding of the transaction process and how their company should be positioned. This is a process that occurs over time working with experienced advisors. As a company evolves, it is important to understand how changes impact operations and more importantly what effect these changes will have on the valuation of the business. At Links, we address key areas shareholders should consider when evaluating and positioning a company for a monetization event while being cognizant that purchasers want to see the company continue to generate and grow earnings. Addressed in this newsletter are some select areas that shareholders should focus on.
Almost every business at one time or another enters into a banking relationship where they have a line of credit or some kind of term financing with banks. From a cost of capital perspective, debt is the least expensive capital that one can attain and should use appropriate amounts of leverage in running their business. Banks are an important partner in the growth of any successful business and must be treated that way.