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Published byBuck Sullivan Modified over 9 years ago
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EBITDA
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EBITDA What is EBITDA? – Earnings Before Interest, Taxes, Depreciation and Amortization Why is it used? – To evaluate the raw earnings power of a company Why is “raw earnings power” important? – To perform certain types of valuation
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What is Valuation used for? Mergers, Acquisitions, and Leveraged Buyout Analysis Real-Estate Investments Comparing Companies within or across industries General Securities Analysis
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How to Get EBITDA Revenues - Costs (COGS, SG&A) = EBITDA Ignores secondary costs like financing charges, taxes, and non-cash costs like depreciation and amortization Take Viacom, Inc: 5,954.4 (Revenue) - 3,887.6 (COGS) - 1,109.9 (SG&A) = 956.9 (million) - EBITDA What about “ITDA”? 397.1 (Depr.&Amort.) + 209.1 (interest exp) + 202.4 (taxes) = 808.6 (million)
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Common Applications of EBITDA Discounted Cash Flow Valuations – A multiple of EBITDA can be used to calculate terminal value Acquisition, Merger, and LBO valuations – An LBO buyer looks to pay back all cash for the buyout within six years, so they try not to pay over 5x EBITDA for the company being bought
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Where to go from here… EBITDA ratios… – EBITDA / Interest Expense (a variation of interest coverage ratio) – EBITDA / Sales – Variations: EBIT, EBITA Applying Enterprise Value / EBITDA
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