2 min read. You often hear a company was sold for x times EBITDA. So, what is EBITDA and how is it used to value a business? EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is often used to determine a company’s value and the purchase price in a business acquisition transaction. A business can be valued by applying a multiple to its maintainable EBITDA. EBITDA is a preferred metric by many valuation and M&A professionals because it gives a more standardized view of the operating profitability of a business in comparison to similar businesses in the […]
working capital
2 posts
1 min read. A business valuation typically involves determining the future cashflows that a company will generate and applying an appropriate multiple on the cashflows to arrive at the value of operations. The most common error I’ve seen in business valuations done, including those generated by online valuation software, is that cash on hand is automatically added to value without assessing if it’s needed for operations. Similar errors include adding the net tangible assets to equity value. These are working capital (i.e. accounts receivable, net of accounts payables, inventory, etc.) and capital assets such as equipment and trucks, etc. These […]