ENTERPRISE VALUE TO EBITDA MULTIPLE

Unlike the earnings multiples discussed so far in this chapter, the enterprise value to EBITDA multiple is a firm value multiple. In the past two decades, this multiple has acquired a number of adherents among analysts for several reasons. First, there are far fewer firms with negative EBITDA than there are firms with negative earnings per share, and thus fewer firms are lost from the analysis. Second, differences in depreciation methods across different companies—some might use straight-line while others use accelerated depreciation—can cause differences in operating income or net income but will not affect EBITDA. Third, this multiple can be compared far more easily than other earnings multiples across firms with different financial leve....