EBITDA Multiples Across Industries | Eqvista (2022)

Company valuation is one thing that every entrepreneur must bear in mind at every stage of a business. No significant decision can be taken without estimating the market value of a company at any given point. Factors called valuation multiples are important indicators in this process. Investors and company managements alike use these valuation multiples by industry as a guide in funding and budgeting decisions. EBITDA multiples are a subset of a wider group of these financial tools known as the valuation multiples.

In this article, we focus on this particular category of valuation multiples and discuss their pros and cons, as well as their applicability in various industries.

EBITDA Multiples Across Industries | Eqvista (1)

EBITDA Multiple

‘Multiple’ as such means a factor of one value to another. In the context of company valuation, valuation multiples represent one finance metric as a ratio of another. These multiples are widely categorized into three types – equity multiples, enterprise value multiples, and revenue multiples. This article focuses on EBITDA multiples valuation which is a type of enterprise value multiple.

What is EBITDA Multiple?

EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. EBITDA multiples are a ratio of the Enterprise Value of a company to its EBITDA. These multiples are very useful to estimate the market value of a company based on a set of standard factors and simultaneously compare them to other companies in the industry with similar credentials. They are especially beneficial to compare companies within the industry but vary in aspects such as their capital structure, asset ownership, taxation, etc.

Usually in the initial stages of a business, revenue multiples are used. As the company begins to mature and profit potential becomes a determining factor for investors and market valuation, EBITDA multiples by industry are used to understand the profit potential of a company. A higher value indicates a higher profit possibility and vice versa. However, as a good practice, these multiples are not used as a single point of reference. Experienced analysts always refer to the value from two or more valuation multiples to arrive at a realistic valuation of a business.

(Video) EBITDA Multiple Valuation Quick Tutorial (AMZN Stock Example)

Why is the EBITDA Multiple important?

To understand the importance of EBITDA multiples, one must begin by questioning the relevance of the two factors used in the calculation – the EV (enterprise value) and the EBITDA of the company. Enterprise value estimates the total worth of a company in the market, while EBITDA measures the profit potential of the same business. When these two are calculated as a factor of one to another, the resulting multiple provides a realistic estimate of the true merit of the company as an investment option. Investors can compare the multiples of various companies and estimate how much they really need to pay to acquire this company.

EBITDA Multiples Across Industries | Eqvista (2)

As a practice, it is seen that the lower the value of the EBITDA multiplies by industry, the cheaper is the acquisition cost of the company. Usually, any value below 10 is considered good. Thus with an EBITDA multiple, investors planning on the acquisition can estimate the following:

  • Company A is trading for example at 5x
  • Company B, C, D, and E are trading at 7x, 6.5x, 3x, and 9x respectively
  • Company D with an EBITDA multiple of 3x seems to be the best choice for acquisition

Investors find EBITDA multiples valuation reliable while considering companies within the same industry for mergers and acquisitions. However, it is important to know that investors will always try to pitch for a lower valuation and make the necessary adjustments to the EBITDA multiple while a seller will try the opposite. An expert analyst should always keep a lookout for wrong estimations arising from these factors.

EBITDA Multiple formula

As discussed, EBITDA multiple by industry is derived from two financial metrics – the enterprise value and the EBITDA of a company. The formula looks like this:

EBITDA multiple = Enterprise value (EV) / EBITDA multiple

Let’s discuss each component one at a time.

(Video) Exit EBITDA Multiple

What is EV?

EV or the Enterprise value is the first thing investors look at during mergers and acquisitions. As such, there are many factors beyond internal financial metrics that contribute to the true valuation of a company. However, funding decisions can’t be based on vague estimations. To ensure solidity in company valuations, enterprise value is used as a common reference. Though it is a theoretical value of takeover, private equity firms have evolved to rely heavily on this metric. Enterprise value indicates the amount of money needed to acquire a business.

Enterprise Value is calculated in two ways. The simplest one is:

EV = Market cap + Market Value of debt – Cash & Cash equivalents

And the elaborate version of this formula is:

EV = Common shares + Preferred shares + Market value of debt + Minority interests – Cash & Cash equivalent

Another variation of EV calculation could be:

(Video) How to value a company using multiples - MoneyWeek Investment Tutorials

EV = Equity Value – Non-Operating Assets + Liability and other minority stakes

As seen in the formula, enterprise value does not depend on the capital structure of a company. Thus, it can be safely used to compare companies with varying cap structures for a takeover. As a result, being part of the EBITDA multiple valuations, the enterprise value as an entity lends this character to the multiple as well. An EBITDA multiple is thus a reliable valuation tool while comparing companies with varying cap structures.

What is EBITDA?

Earnings Before Interest Taxes Depreciation and Amortization or EBITDA is used by investors to solely estimate a company’s profitability excluding the non-operating and non-controllable assets. This metric is easily derived from the financial reports maintained by a company. Analysts do not need to use complicated calculations to derive this value. It is simple and straightforward. EBITDA formula is as follows:

EBITDA = Net profit + Interest + Tax + Depreciation + Amortization

EBITDA points at the current financial health of a company. Based on this value, analysts estimate the future profit-making potential of the company. Thus, EBITDA as a part of EBITDA multiples by industry contributes as the metric that determines the profitability of companies being considered for a potential takeover.

Pros and Cons of EBITDA Multiple Valuation

EBITDA multiples valuation is a go-to technique for most investors and financial analysts dealing with high-profit mergers and acquisitions. Using this category of valuation multiple indeed has its merits; however, it is also important to note the loopholes as well. Here is a brief about the pros and cons of EBITDA multiples:

(Video) What is EBITDA? Why is an EBITDA Multiple Important in a Company Valuation? Expert St. Louis

Pros of EBITDA multiples

  • It can be used to evaluate various types of businesses, private as well as public. But using this multiple for public company valuations is the easiest as all financial information for such companies are readily available.
  • They are best used to evaluate companies entering advanced stages of funding such as Series-B onwards. The profitability of a company is a crucial factor at this stage. The use of enterprise value as well as EBITDA together in a ratio provides investors sufficient clarity about the future profit potential of an expanding business.
  • They have proven to be very useful to evaluate as well as compare companies of different sizes and capital structures. This flexibility allows a wide range of comparisons for investors to play within an industry.
  • They help to evaluate companies faster in comparison to valuation multiples based on financial metrics that use cash flow and other income-generating sources.

Cons of EBITDA multiples

  • They do not account for capital expenditures. Thus if a business has high capital spends, those do not feature in the multiple and might lead to skewed valuations.
  • They do not consider exact cash flows as well. This again might not represent the actual financial situation of a company leading to wrong estimations.
  • EBITDA multiples valuation is not regulated by any financial body. This leaves a wide berth for variations in calculations across industries. It is mostly left to the company valuation professionals and the investors involved in the takeover negotiations.
  • Due to this non-regulatory aspect, it leaves open chances of misinterpretations.
EBITDA Multiples Across Industries | Eqvista (3)

EBITDA Multiples by Industry

Here is a compilation of EBITDA multiples across industries. To study this table, a couple of aspects are worth considering. Firstly, EBITDA multiples for small business or startups will be lower, in the range of 4x. Secondly, these multiples will be at a higher range for large, publicly traded companies. And lastly, since EBITDA multiples are not regulated by any federal body, fair play is expected as a good practice in business.

Row LabelsAnnual VolatilityEV to Ebitda
Advertising71.76%18.54
Aerospace37.30%15.96
Agricultural Chemicals62.18%10.96
Air Freight/Delivery Services43.54%39.61
Aluminum42.03%12.41
Apparel29.00%22.68
Assisted Living Services53.87%7.71
Auto Manufacturing96.23%19.37
Auto Parts - O.E.M.41.07%11.42
Automotive Aftermarket63.62%47.25
Beverages (Production/Distribution)62.32%64.72
Biotechnology - Biological Products (No Diagnostic Substances)111.05%40.86
Biotechnology - Commercial Physical & Biological Research110.13%19.56
Biotechnology - Electromedical & Electrotherapeutic Apparatus62.78%28.26
Biotechnology - In Vitro & In Vivo Diagnostic Substances110.61%15.51
Biotechnology - Laboratory Analytical Instruments89.65%9.63
Broadcasting33.77%15.18
Building Materials68.86%12.07
Building operators51.84%18.64
Building Products76.38%8.82
Business Services91.84%32.66
Catalog/Specialty Distribution92.93%15.48
Clothing/Shoe/Accessory Stores74.62%11.06
Coal Mining64.42%8.51
Computer Manufacturing65.60%11.63
Computer peripheral equipment83.97%11.2
Computer Software: Prepackaged Software112.17%63.98
Construction/Ag Equipment/Trucks41.67%15.63
Consumer Electronics/Appliances91.75%3.95
Consumer Electronics/Video Chains155.48%16.94
Consumer Specialties92.25%12.21
Containers/Packaging73.17%32.08
Department/Specialty Retail Stores83.54%17.19
Diversified Commercial Services50.40%16.23
Diversified Financial Services72.81%4.35
Diversified Manufacture78.36%25.58
EDP Services104.67%33.87
Electric Utilities: Central47.28%14.84
Electrical Products76.09%41.86
Electronic Components62.49%12.08
Engineering & Construction69.18%9.95
Environmental Services69.21%12.91
Farming/Seeds/Milling51.92%13.9
Finance/Investors Services26.05%8.63
Finance: Consumer Services56.96%2.95
Fluid Controls63.58%19.75
Food Chains50.46%4.83
Food Distributors52.08%17.72
Forest Products85.21%9.37
Home Furnishings75.83%10.7
Homebuilding94.44%12.69
Hospital/Nursing Management93.04%11.29
Hotels/Resorts57.54%73.91
Industrial Machinery/Components95.75%15.02
Industrial Specialties74.91%29.17
Integrated oil Companies61.53%19.14
Internet and Information Services59.87%21.57
Investment Bankers/Brokers/Service58.67%10.22
Investment Managers76.15%5.07
Major Chemicals56.96%18.28
Major Pharmaceuticals59.83%19.12
Managed Health Care47.05%44.72
Marine Transportation60.64%6.88
Meat/Poultry/Fish54.55%14.22
Medical Electronics53.99%2.33
Medical Specialties81.53%16.72
Medical/Dental Instruments90.51%40.41
Medical/Nursing Services74.13%14.09
Metal Fabrications90.06%20.64
Military/Government/Technical78.51%14.11
Motor Vehicles116.73%17.19
Movies/Entertainment51.01%23.74
Multi-Sector Companies59.62%12.68
Natural Gas Distribution50.47%9.9
Newspapers/Magazines56.92%9.35
Office Equipment/Supplies/Services66.02%17.31
Oil & Gas Production62.40%17.99
Oil Refining/Marketing55.74%23.33
Oil/Gas Transmission31.62%11.29
Oilfield Services/Equipment67.36%17.23
Ordnance And Accessories77.24%11.84
Other Consumer Services42.07%39.97
Other Metals and Minerals89.21%5.63
Other Pharmaceuticals50.76%5.06
Other Specialty Stores127.77%10.97
Package Goods/Cosmetics70.48%20.35
Packaged Foods42.61%22.34
Paints/Coatings50.13%16.21
Paper41.24%13.46
Plastic Products41.00%9.32
Pollution Control Equipment54.28%10.17
Power Generation53.62%13.15
Precious Metals53.43%6.71
Professional Services57.43%19.27
Radio And Television Broadcasting And Communications Equipment123.14%16.16
Railroads68.00%16.25
Real Estate94.77%54.31
Real Estate Investment Trusts75.58%28.93
Recreational Products/Toys55.84%13.02
Rental/Leasing Companies87.89%5.96
Restaurants94.04%27.89
Retail: Building Materials66.18%9.47
Retail: Computer Software & Peripheral Equipment73.85%65.73
Semiconductors102.78%26.95
Service to the Health Industry78.43%9.05
Services & Misc. Amusement & Recreation29.34%22.96
Shoe Manufacturing97.13%18.08
Specialty Chemicals12.36%5.65
Specialty Foods47.76%20.63
Specialty Insurers66.80%7.33
Steel/Iron Ore60.14%6.52
Telecommunications Equipment59.15%22.15
Television Services97.80%43.74
Textiles59.09%7.99
Tobacco30.39%5.78
Tools/Hardware95.34%19.28
Transportation Services47.51%8.16
Trucking Freight/Courier Services68.96%10.31
Water Supply71.57%15.5
Wholesale Distributors84.71%14.07

This data was compiled from the major public companies in each industry from NASDAQ, NSYE & AMEX.

Top 10 EV/EBITDA Industries

To understand how the EV/EBITDA works in the context of industries, here is a compilation of the top 10 in order of the highest value. As per this data, the hotels and resorts industry shows the maximum business value with a ratio of 73.91. This is followed by the retail of computer software and peripheral equipment at a value of 65.73, and the production and distribution of the beverages industry at 64.72. While the biological products of the biotechnology sector are in the 10th position with a value of 40.86, it is closely preceded by the electrical products industry in the 9th position with a value of 41.86.

Industries EV to EBITDA
Hotels/Resorts73.91
Retail: Computer Software & Peripheral Equipment65.73
Beverages (Production/Distribution)64.72
Computer Software: Prepackaged Software63.98
Real Estate54.31
Automotive Aftermarket47.25
Managed Health Care44.72
Television Services43.74
Electrical Products41.86
Biotechnology: Biological Products40.86

Bottom 5 EV/EBITDA Industries

Meanwhile, here are the 5 five industries with the lowest EV/EBITDA value. The medical electronics industry has the lowest value of 2.33. This is closely followed by the consumer services in the finance industry with a value of 2.95. But the consumer electronics and appliances sector seem to have performed a little better. These low values might look profitable for investors to acquire companies from these sectors at a cheaper rate, but they must take a look at the overall financial performance as well. Usually, an EV/EBITDA value of 10 is a healthy benchmark.

IndustriesEV to EBITDA
Other Pharmaceuticals5.06
Food Chains4.83
Diversified Financial Services4.35
Consumer Electronics/Appliances3.95
Finance: Consumer Services2.95
Medical Electronics2.33

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FAQs

What is a good EBITDA multiple by industry? ›

Investors can compare the multiples of various companies and estimate how much they really need to pay to acquire this company. As a practice, it is seen that the lower the value of the EBITDA multiplies by industry, the cheaper is the acquisition cost of the company. Usually, any value below 10 is considered good.

Why do different industries have different EBITDA multiples? ›

Various industries generally have different EBITDA multiples because different industries have different growth prospects, financial performance, and financial metrics.

How many multiples of EBITDA is a company worth? ›

Earnings are key to valuation

The multiples vary by industry and could be in the range of three to six times EBITDA for a small to medium sized business, depending on market conditions. Many other factors can influence which multiple is used, including goodwill, intellectual property and the company's location.

What is a reasonable EBITDA multiple? ›

The EV/EBITDA Multiple

The enterprise-value-to-EBITDA ratio is calculated by dividing EV by EBITDA or earnings before interest, taxes, depreciation, and amortization. Typically, EV/EBITDA values below 10 are seen as healthy.

Is a 50% EBITDA good? ›

EBITDA margin = EBITDA / Total Revenue

The margin can then be compared with another similar business in the same industry. An EBITDA margin of 10% or more is considered good.

Which industries has highest EBITDA margin? ›

Some regularly-high EBITDA margin, capital-intensive industries include oil and gas, railroad, mining, telecom, and semiconductors. Utilities and telecom services also benefit from high barriers to entry, limiting the number of competitors in a given geography and often leading to a monopoly.

Why would two companies in the same industry have different multiples? ›

The answer:

The most important reason why two companies in the same sector trade at different PE ratios or EV/EBIT multiples is because of the underlying growth in profitability.

What are some industry specific multiples? ›

Enterprise value (EV) to gross revenues or net sales. EV to net income. EV to EBIT and EBITDA (earnings before interest, taxes, depreciation, and amortization) EV to seller's discretionary cash flow. EV to total business assets.

Do larger companies have higher multiples? ›

Larger companies are more established and seen as less risky. This translates into more favorable valuations and subsequently higher price multiples.

How much is a business worth with $1 million in sales? ›

Using this basic formula, a company doing $1 million a year, making around $200,000 EBITDA, is worth between $600,000 and $1 million. Some people make it even more basic, and moderate profits earn a value of one times revenue: A business doing $1 million is worth $1 million.

What is the rule of thumb for valuing a business? ›

60 to 70 percent of annual sales, including inventory. 1.3 to 2.5 times Seller's Discretionary Earnings (SDE), including inventory. Three to four times Earnings Before Interest and Taxes (EBIT) Two to four times Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Do large firms have larger EBITDA multiples? ›

A small company usually only has a higher EBITDA multiple than a larger company when the small company is unprofitable. In such a case, the company may be acquired based on asset value. Dividing the asset value by EBITDA can lead to an unusually high EBITDA multiple.

How do I choose an EBITDA multiple? ›

What is the Formula for the EBITDA Multiple? To Determine the Enterprise Value and EBITDA: Enterprise Value = (market capitalization + value of debt + minority interest + preferred shares) – (cash and cash equivalents) EBITDA = Earnings Before Tax + Interest + Depreciation + Amortization.

What is the average EBITDA multiple for small business? ›

In general, smaller businesses (with transaction values between $10 - $25 million) are worth less and have lower multiples of between 5.0x to 6.0x, and larger business (with transaction values between $100 - $250 million) are worth more and have higher multiples of between 7.0x and 9.0x.

How many times earnings is a company worth? ›

Typically, valuing of business is determined by one-times sales, within a given range, and two times the sales revenue. What this means is that the valuing of the company can be between $1 million and $2 million, which depends on the selected multiple.

What is Apple's EBITDA? ›

EBITDA can be defined as earnings before interest, taxes, depreciation and amortization. Apple EBITDA for the quarter ending September 30, 2022 was $27.759B, a 3.68% increase year-over-year. Apple EBITDA for the twelve months ending September 30, 2022 was $130.541B, a 8.57% increase year-over-year.

What is a healthy EBITDA? ›

What is a good EBITDA? An EBITDA over 10 is considered good. Over the last several years, the EBITDA has ranged between 11 and 14 for the S&P 500. You may also look at other businesses in your industry and their reported EBITDA as a way to see how your company is measuring up.

What is Apple's EBITDA margin? ›

Apple's operated at median ebitda margin of 30.8% from fiscal years ending September 2018 to 2022. Looking back at the last five years, Apple's ebitda margin peaked in September 2022 at 33.1%.

How many times EBITDA is a manufacturing company worth? ›

Average EBITDA Multiple range: 3.54x – 4.19x

In our data, the average EBTIDA multiple for a manufacturing business is between 3.54x – 4.19x. To derive the implied value of the manufacturing company, take EBITDA and apply the multiple.

What is a good profit margin by industry? ›

What is a Good Gross Profit Margin?
IndustryGross Profit MarginNet Profit Margin
Apparel49.77%-3.94%
Auto and Truck9.04%1.4%
Banks (Regional)99.75%23.79%
Building Materials28.38%5.06%
15 more rows

What industry has the best margins? ›

The 10 Industries with the Highest Profit Margin in the US
  • Trusts & Estates in the US. ...
  • Tax Preparation Software Developers. ...
  • Maids, Nannies & Gardeners in the US. ...
  • Land Leasing in the US. ...
  • Industrial Banks in the US. ...
  • Residential RV & Trailer Park Operators. ...
  • Stock & Commodity Exchanges in the US.

How do you compare two companies in the same industry? ›

The most basic way to analyse and compare stocks from the same sector is to conduct an analysis of different ratios like Earnings per share (EPS), Price-to-Earnings (P/E Ratio), Return on Equity (ROE), Return on Capital Employed (ROCE), and Debt-to-Equity ratios. (D/E Ratio).

What multiples are most commonly used in valuation? ›

The most common multiple used in the valuation of stocks is the P/E multiple. It is used to compare a company's market value (price) with its earnings. A company with a price or market value that is high compared to its level of earnings has a high P/E multiple.

What drives EBITDA multiples? ›

The largest factor driving a multiple of EBITDA is risk. Risk, in an investment context, describes the likelihood that expected cash flows will be received. The higher the risk, the lower the likelihood that cash flows will be received as predicted.

What is my industry multiplier? ›

Industry multiplier. Also called an “SDE multiple,” your industry multiplier is a number that you multiply your SDE by to get the fair market value of your business.

How do you value industrial companies? ›

In general, the primary factors to consider when valuing a manufacturing company are:
  1. Sales and profitability trends.
  2. Years in operation.
  3. Condition and age of equipment and its value.
  4. Technology (and potential for obsolescence)
  5. Competition.
  6. Industry trends.
  7. Number of products and services offered.
21 Aug 2015

Is a high EBITDA multiple good? ›

A high EV/EBITDA multiple implies that the company is potentially overvalued, with the reverse being true for a low EV/EBITDA multiple. Generally, the lower the EV-to-EBITDA ratio, the more attractive the company may be as a potential investment.

What causes a high EBITDA multiple? ›

As depreciation increases as a proportion of EBITDA, Value/EBITDA multiples will increase. For a given level of capital expenditures, firms which report higher depreciation will have higher multiples.

Why do high growth companies have higher multiples? ›

There has to be a set of investment opportunities that is sufficiently large in comparison with the capital already invested in the business. In general, young businesses with large and growing markets will therefore trade at higher multiples than old businesses with limited markets.

What are the 3 ways to value a company? ›

What are the main valuation methods? When valuing a company as a going concern, there are three main valuation methods used by industry practitioners: (1) DCF analysis, (2) comparable company analysis, and (3) precedent transactions.

What percentage of businesses bring in more than $1 million in sales? ›

In 2018, 9% of small businesses made more than $1 million.

In 2018, 37% of US-based small businesses reported expected annual sales of $50,000, while in 2020, the percentage jumped to 43%.

What multiple do small businesses sell for? ›

The typical range for a small business is 1.5 to 3x SDE. Higher earnings, fast growth, and stellar margins can all help to increase the multiple.

What is the most common way to value a business? ›

Market capitalization is the simplest method of business valuation. It is calculated by multiplying the company's share price by its total number of shares outstanding.

What is the formula for valuing a company? ›

When valuing a business, you can use this equation: Value = Earnings after tax × P/E ratio. Once you've decided on the appropriate P/E ratio to use, you multiply the business's most recent profits after tax by this figure.

How do you value multiple business earnings? ›

The multiple of earnings is a valuation method whereby the value of a company is expressed through the use of a multiple applied to the company's earnings. For example, a company that has earnings of $1 million dollars with a multiple of 6x will be valued at $6 million.

What multiple do tech companies sell for? ›

Summary. Price to sales multiple and EV/EBITDA multiple are widely used to value software companies quickly. An average of 4.0x price to sales multiple and an average of 16.0x EV/EBITDA multiple can be used to value smaller software companies.

What multiple of EBITDA do construction companies sell for? ›

Type of Construction CompanyDiscretionary Earnings MultiplesEBITDA Multiples
General Contractor1.5 – 33 – 5
Remodeler1.5 – 2.83 – 4.5
Window Wall2 – 33.5 – 5
HVAC/Plumbing/Electrical1.5 – 3.33.5 – 5.5
2 more rows
14 May 2018

What does 10X EBITDA mean? ›

Related Definitions

10X LTM EBITDA means, as of the specified date, the product of (i) 10.0 multiplied by (ii) the EBITDA for the twelve months ended as of the last day of the month immediately preceding the measurement date.

What is a good multiple for a business? ›

The multiplier for a small to midsized business will generally fall between 1 and 3‚ meaning‚ that you will multiply your earnings before interest and taxes (EBIT) by either 1X‚ 2X or 3X. For larger‚ more established organizations‚ the multiplier can be 4 or higher.

What is a good EBITDA by industry? ›

One of the most common metrics for business valuation is EBITDA multiples.
...
EBITDA Multiples By Industry.
IndustryEBITDA Average Multiple
Retail, general14.70
Retail, food8.89
Utilities, excluding water12.74
Homebuilding10.52
10 more rows
9 Sept 2021

What does 20x earnings mean? ›

The p/e ratio 20 (usually we denote that as 20x). This means that for every one dollar of earnings, investors are willing to pay 20 times that in value.

How do you value a company based on EBITDA? ›

To employ EBITDA to value a business, look at other organizations in the same industry that have sold recently, and compare their selling prices to their EBITDA information. This yields a multiple of selling prices to EBITDA that can be used to arrive at a general estimate of what a company is worth.

› business-valuation ›

Reading Time: 7 minutes. If you are thinking about selling your company, you are undoubtedly wondering what's the value of your business. A common approach ...
Corporate finance advisers, private equity firms and corporate acquirers often value privately-owned businesses using 'EBITDA multiples'. EBITDA is a me...

What is considered good EBITDA? ›

What is a good EBITDA? An EBITDA over 10 is considered good. Over the last several years, the EBITDA has ranged between 11 and 14 for the S&P 500. You may also look at other businesses in your industry and their reported EBITDA as a way to see how your company is measuring up.

Do you want a low or high EBITDA multiple? ›

EV to EBITDA Ratio – Industry Benchmarks

A high EV/EBITDA multiple implies that the company is potentially overvalued, with the reverse being true for a low EV/EBITDA multiple. Generally, the lower the EV-to-EBITDA ratio, the more attractive the company may be as a potential investment.

Is a high or low EBITDA better? ›

This percentage indicates how much of a company's operating expenses are eating into profits, with a higher EBITDA margin indicating a more financially stable company with lower risk.

What is the average EBITDA for a company? ›

Average EBITDA is equal to the quotient of (x) the sum of the EBITDA (earnings before interest, taxes, depreciation and amortization) of the Facility for each of the three calendar years ending on or before the first day of the tenth Contract Year, divided by (y) three.

What is a good EBIT margin by industry? ›

As a general rule of thumb, a 10% net profit margin is considered average, a 20% margin is good, and a 5% margin is low. But you should note that what exactly is a good margin varies widely by industry. For example, in the construction industry, profit margins of 1.5% to 2% are standard.

What is Apple's EBITDA? ›

EBITDA can be defined as earnings before interest, taxes, depreciation and amortization. Apple EBITDA for the quarter ending September 30, 2022 was $27.759B, a 3.68% increase year-over-year. Apple EBITDA for the twelve months ending September 30, 2022 was $130.541B, a 8.57% increase year-over-year.

What is Apple's EBITDA margin? ›

Apple's operated at median ebitda margin of 30.8% from fiscal years ending September 2018 to 2022. Looking back at the last five years, Apple's ebitda margin peaked in September 2022 at 33.1%.

Do large firms have larger EBITDA multiples? ›

A small company usually only has a higher EBITDA multiple than a larger company when the small company is unprofitable. In such a case, the company may be acquired based on asset value. Dividing the asset value by EBITDA can lead to an unusually high EBITDA multiple.

Why EBITDA is not a good measure? ›

Among its drawbacks, EBITDA is not a substitute for analyzing a company's cash flow and can make a company look like it has more money to make interest payments than it really does. EBITDA also ignores the quality of a company's earnings and can make it look cheaper than it really is.

What drives EBITDA multiples? ›

The largest factor driving a multiple of EBITDA is risk. Risk, in an investment context, describes the likelihood that expected cash flows will be received. The higher the risk, the lower the likelihood that cash flows will be received as predicted.

What does rule 40 mean? ›

The Rule of 40—the principle that a software company's combined growth rate and profit margin should exceed 40%—has gained momentum as a high-level gauge of performance for software businesses in recent years, especially in the realms of venture capital and growth equity.

Does EBITDA include salaries? ›

EBITDA is the primary measure of cash flow used to value mid to large-sized businesses and does not include the owner's salary as an adjustment.

Is EBITDA a good indicator of performance? ›

The EBITDA margin is considered to be a good indicator of a company's financial condition because it evaluates a company's performance without needing to take into account financial decisions, accounting decisions or various tax environments.

How do you choose EBITDA multiple? ›

What is the Formula for the EBITDA Multiple? To Determine the Enterprise Value and EBITDA: Enterprise Value = (market capitalization + value of debt + minority interest + preferred shares) – (cash and cash equivalents) EBITDA = Earnings Before Tax + Interest + Depreciation + Amortization.

What multiples are businesses selling for? ›

Most companies sell for 2-6 times SDE. If you look at all business sales under $1 million for the last 10 years, the average multiple of SDE is 2.2 times but sometimes the multiple is not as high as the seller wants or thinks it should be.

What is my industry multiplier? ›

Industry multiplier. Also called an “SDE multiple,” your industry multiplier is a number that you multiply your SDE by to get the fair market value of your business.

› sites › 2020/03/17 › what-is-ebi... ›

There are all sorts of ways in which investors measure the financial health of a company. They'll look at sales and cash flow. They'll consider various ...
In its simplest definition, EBITDA is a measure of a company's financial performance, acting as an alternative to other metrics like revenue, earnings or ne...
EBITDA stands for earnings before interest, taxes, depreciation and amortization. The margin provides investors with a snapshot of a firm's short-term opera...

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