EBITDAEBITDA

EBITDAEBITDA

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

What is Valuation used for?What is Valuation used for?

Mergers, Acquisitions, and Leveraged Buyout Analysis

Real-Estate Investments

Comparing Companies within or across industries

General Securities Analysis

How to Get EBITDAHow 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)

Common Applications of Common Applications of EBITDAEBITDA

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

Where to go from here…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