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What is an EBITDA Multiple Valuation? Business Valuation Expert St. Louis, MO (314) 541-8163
My name is Melissa Gragg and I am a business valuation expert in St. Louis Missouri.
Many people are familiar with the term EBITDA, or Earnings Before Interest Taxes Depreciation and Amortization. But what is an EBITDA valuation multiple?
This is a term used in various financial areas including mergers and acquisitions or m&a firms.
It is basically the price the business sold for in the open market
divided by the EBITDA number – or cash flow.
So let’s say manufacturing companies sell for 4 to 5 times EBITDA. People will use 4 to 5 as a general rule, but it may not be true for all industries.
The multiple changes depending on the time period and industry and even the size of the company.
Makes sense right?
The more recent the data, the more relevant the multiple.
So you take the average multiple and Then you determine the cash flow or EBITDA
Now multiply this cash flow number by 4 or 5 and that is the price you could sell your business.
In the valuation of the company there are many methods to consider and one of them is the market approach.
This is the approach that uses various market multiples, basically what companies have sold for in the open market, to determine the value of company and one of them is a multiple of EBITDA.
Of course it’s not that simple, because a buyer considers many factors in order to determine what they would pay for particular company.
Buyers will also look at adjusted EBITDA, which is calculated by reviewing the financial statements and adjusting for nonoperating or nonrecurring items.
This is why it’s not only important to understand what the market multiples or EBITDA valuation multiples are – in your industry – but also to understand what does is your historical average EBITDA.
If you’d like to know more about how to value a company, or if you are selling a business and have some questions about the value give us a call at 314-541-8163 or check out our website at https://www. ValuationStLouis.com
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