Goldman Sachs DeckHard

Two companies in the same industry have identical EBITDA. Company A grows revenue 15% with 30% EBITDA margins; Company B grows 5% with 20% margins. Which deserves the higher EV/EBITDA and why?

Model answer

Company A. A multiple is shorthand for a DCF — it compresses expectations of future cash flow into one number — so anything that raises future free cash flow relative to today's EBITDA raises the…

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