Valuation: Comps & Precedents
Two comps both trade at 8x EV/EBITDA (EV $800m, EBITDA $100m each). Company A spends $10m a year on capex, Company B spends $60m. Are they equally cheap?
Model answer
Not on a cash basis. Compute EV/(EBITDA - capex): A = $800m / ($100m - $10m) = $800m / $90m = ~8.9x; B = $800m / ($100m - $60m) = $800m / $40m = 20x. Identical headline EV/EBITDA, but B is more than…
The full, human-reviewed answer is in the bank.
Sign up free and Daily 10 serves you 10 questions a day from all 1,500+ — or go Pro for unlimited reps.
More from Valuation: Comps & Precedents
- What are the main valuation methodologies?
- Why might trading comps and precedent transaction comps give different values?
- Why is EV/EBITDA often preferred over P/E for comparing companies?
- What are the three primary valuation methodologies a banker uses, and in one line each, what is each based on?
- Which of the standard valuation methodologies tend to produce the HIGHEST and the LOWEST values, and why?
- Walk me through how you perform a comparable companies analysis.