Calculate Ev to Ebitda
EV (enterprise value) to EBITDA (earnings before interest, taxes, depreciation and amortization) is a widely used ratio for valuation analysis. Also known as the Enterprise Multiple, EV to EBITDA has an advantage over other valuation ratios in that it is unaffected by changes in a company's capital structure (debt). The exact ratio is EV divided by EBITDAm and it compares the value of a debt-free firm with its earnings. This ratio is largely used as a way to spot takeover targets.
Instructions
1. Calculate enterprise value (EV). EV is calculated by summing market capitalization, the cost of debt financing and the value of all other liabilities.
2. Look up market capitalization, cost of debt financing, and the value of other liabilities. Market capitalization is the total value of shares of a company. It can be found on any investment website, like Yahoo! Finance or MSNBC Money. The cost of debt and other liabilities can be found in the Form 10K on the balance sheet and notes to the financial statements.
3. From the sum you found in Step 2, subtract liquid assets. Liquid assets are cash investments and equivalents. The difference is the EV.
4. Calculate the EBITDA. EBIDTA equals profits before interest expense, depreciation and amortization. Start with net profit, add back interest expense, taxes, depreciation expense and amortization. These can also be found on the cash flow statement if they are not separated out on the income statement.
5. Divide enterprise value (Step 3) by EBITDA (Step 4). The number is expressed as a multiple, e.g., N times (3x). A higher/lower ratio signifies that the company is over/under priced.
