View source for EBITDA multiple

1.

A method of entity business valuation which is based on:

(i) Accounting Earnings before interest, tax, depreciation and amortisation (EBITDA) and <br>
(ii) The ratio of entity value to EBITDA of a comparable business (or a comparable group of businesses).


EBITDA multiple = Total value of firm ÷ EBITDA.


2.

For example, the total entity value of Company A is $750m and its relevant EBITDA is $150m.

Company A's EBITDA multiple:

= $750m/$150m 

= 5 times.


3.

The EBITDA multiple can also be used as a very simple comparison or estimation model, for corporate valuation.

In another case, say comparable EBITDA multiples for an unlisted Company B are 6, and its relevant EBITDA is $30m.

The total entity value of Company B's business can be estimated on this basis as:

6 x $30m 

= $180m.


==See also==
* [[Earnings multiples]]
* [[EBITDA]]
* [[Price to earnings ratio]]