Unlike earnings per share, which is subject to varying levels of debt and interest expenses, EBITDA—Earnings Before Interest, Taxes, Depreciation, and Amortization—provides a view of core operational profitability. The second is forward-looking data, based on current trading prices of public companies or announced deals, which reflects current market sentiment and future expectations.
Applying the Public Company Method to Determine EBITDA Multiples
To find the true relative value, you must adjust for differences in growth prospects, profitability margins, and risk profiles. For example, technology and healthcare companies often command significantly higher multiples than manufacturing or retail due to their growth potential and intangible asset bases.
Sources for this data include merger and acquisition databases, financial press releases, and specialized transaction databases. Analyzing precedent transactions helps validate the multiples derived from public comps and adjusts for market timing.
Using the Public Company Method to Determine EBITDA Multiples
When you find EBITDA multiple benchmarks, you must filter the data to ensure you are comparing apples to apples. Industry and Deal Size Variations It is crucial to recognize that EBITDA multiples are not universal; they vary dramatically by industry and deal size.
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