EBITDA multiple and SOFR: Difference between pages

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1.
''US interest rate benchmarks''.


A method of entity business valuation which is based on:
SOFR is the Secured Overnight Financing Rate.


(i) Accounting Earnings before interest, tax, depreciation and amortisation (EBITDA) and
This is a broad treasuries repo financing rate, recommended as a benchmark by the Alternative Reverence Rates Committee (ARRC) of the Federal Reserve.


(ii) The ratio of entity value to EBITDA of a comparable business (or a comparable group of businesses).
It is published by the New York Fed at approximately 8am local time.  




EBITDA multiple = Total value of firm ÷ EBITDA.
3 April 2018 was the first time SOFR was published. It is calculated based on actual transactions and is a volume-weighted median.  


In the first three months of the publication of SOFR the underlying overnight lending transaction volume was on average approximately USD 800 billion.


2.


For example, the total entity value of Company A is $750m and its relevant EBITDA is $150m.
SOFR is the new benchmark USD rate (alternatively known as risk-free rate) and the ARRC is working with the industry to transition to SOFR from LIBOR by 30 June 2023.  


Company A's EBITDA multiple:
= $750m/$150m
= 5 times.


==See also==
*[[Alternative Reference Rates Committee]]  (ARRC)
*[[Federal Funds Rate]]
*[[Federal Reserve]]
*[[IBOR]]
*[[LIBOR]]
* [[New York Fed]]
*[[Reference rate]]
*[[Risk-free rates]]
*[[Repo]]
*[[SOFR term rate]]
*[[SONIA]]
*[[Treasury]]


3.


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


In another case, say comparable EBITDA multiples for an unlisted Company B are 6, and its relevant EBITDA is $30m.
*[https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor/working-group-on-sterling-risk-free-reference-rates Working Group of Sterling Risk-Free Reference Rates - latest announcements & publications]


The total entity value of Company B's business can be estimated on this basis as:
*[https://www.treasurers.org/hub/technical/practical-guide-libor A Practical Guide to LIBOR transition - Slaughter & May - Association of Corporate Treasurers]


6 x $30m
*[[Media:Slaughter and May interest rate benchmarks.pdf| 2021: A Benchmark Odyssey, Practical Guidance for Treasurers on interest rate benchmarks, Slaughter and May]]


= $180m.
*[https://www.bankofengland.co.uk/markets/sonia-benchmark SONIA and other benchmarks]


*[https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report ARRC: Second Report]


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

Revision as of 17:04, 23 October 2022

US interest rate benchmarks.

SOFR is the Secured Overnight Financing Rate.

This is a broad treasuries repo financing rate, recommended as a benchmark by the Alternative Reverence Rates Committee (ARRC) of the Federal Reserve.

It is published by the New York Fed at approximately 8am local time.


3 April 2018 was the first time SOFR was published. It is calculated based on actual transactions and is a volume-weighted median.

In the first three months of the publication of SOFR the underlying overnight lending transaction volume was on average approximately USD 800 billion.


SOFR is the new benchmark USD rate (alternatively known as risk-free rate) and the ARRC is working with the industry to transition to SOFR from LIBOR by 30 June 2023.


See also


Other links

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