EV/EBITDA Is the Deal Price Tag
Use EV/EBITDA to compare acquisition prices while recognizing its limitations.
Do not compare acquisition prices until debt and cash are in the frame. EV/EBITDA is popular because it asks: what is the whole business worth relative to a normalized operating earnings measure? Enterprise Value EV starts with equity value, adds debt-like claims, and subtracts cash-like assets. It approximates the price of the operating business independent of how the balance sheet is financed. EBITDA EBITDA helps compare operating earnings before financing choices and some accounting charges. It is useful, but not pure cash flow. High capex, poor collections, or aggressive addbacks can make EBITDA look better than the economics. Multiple Discipline…
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