Relationship between growth rate and EBITDA multiple Summer 2009 Prof. Keith M. Howe DePaul University

Relationship between growth rate and EBITDA multiple Note that 1) We can imply the growth rate from the EBITDA multiple 2) CF t+1 = EBITDA(1-T) + Dep (T) - CapEx - NWC CV t = CF t+1 r - g CV t = EV X EBITDA t+1 EBITDA

Example CF t+1 = EBITDA(1-T) + Dep (T) - CapEx - NWC = 500 (1-.3) + 20(.3) CF t+1 = 326 5,433 = – ,433 = (EV/EBITDA) x 500 (EV/EBITDA) = Assume that r = 10% and g = 4% When the growth rate is 4%, it implies that the EBITDA multiple is