EBITDA multiple
1.
A method of entity business valuation which is based on:
(i) Accounting Earnings before interest, tax, depreciation and amortisation (EBITDA) and
(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.
