Can you use EBITDA for DCF?
If a valuation multiple, such as EV/EBITDA, is used to calculate a DCF terminal value, the multiple should reflect expected business dynamics at the end of the explicit forecast period and not at the valuation date.
What is the difference between DCF and multiples?
The irony in comparing and contrasting multiples and DCF is that multiples are merely a simplified version of DCF. All of the fundamental drivers of business value are incorporated in both techniques, but those drivers are implied when using multiples whereas they are explicitly estimated with DCF.
How do you use EBITDA multiple to value a company?
Example Calculation
- Calculate the Enterprise Value (Market Cap plus Debt minus Cash) = $69.3 + $1.4 – $ 0.3 = $70.4B.
- Divide the EV by 2017A EBITDA = $70.4 / $5.04 = 14.0x.
- Divide the EV by 2017A EBITDA = $70.4 / $5.50 = 12.8x.
How do you get terminal EBITDA multiple?
The Implied Terminal EBITDA Multiple is easy – divide the Terminal Value from the Perpetuity Growth Method by the Final Year EBITDA.
Why do you use FCF in a DCF instead of EBITDA?
There has been some discussion as to which is the better measure to use in analyzing a company. EBITDA sometimes serves as a better measure for the purposes of comparing the performance of different companies. Free cash flow is unencumbered and may better represent a company’s real valuation.
How can you use EBITDA to calculate the cash flow from operations?
You can calculate FCFE from EBITDA by subtracting interest, taxes, change in net working capitalNet Working CapitalNet Working Capital (NWC) is the difference between a company’s current assets (net of cash) and current liabilities (net of debt) on its balance sheet., and capital expenditures – and then add net …
Is DCF and FCF the same?
The most common variations of the DCF model are the dividend discount model (DDM) and the free cash flow (FCF) model, which, in turn, has two forms: free cash flow to equity (FCFE) and free cash flow to firm (FCFF) models.
What does an EBITDA multiple tell you?
The EBITDA/EV multiple is a financial valuation ratio that measures a company’s return on investment (ROI). The EBITDA/EV ratio may be preferred over other measures of return because it is normalized for differences between companies.
Does DCF include terminal value?
The forecast period and terminal value are both integral components of DCF.