What is it? In relation to revenue?
What is an ebitda multiple and what does it mean?
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EBITDA = Earnings before interest, taxes, depreciation and amortization. Basically, it’s an easy way to remove some financing/accounting decisions from the actual operations of the business. This made a lot of sense when you had industrial businesses that had huge prior year investments in property/plant/equipment that create noise in financial results, because you “pay” for them over multiple years.
An EBITDA multiple is the company’s EBITDA divided by the company’s enterprise value — essentially how much is it earning relative to how much it’s worth. Which allows you to compare similar companies to see if a company is over/under valued compared to the amount of earnings it generates. It’s a useful proxy — for example, if similar companies have a multiple of 10 and your multiple is 5, your company is either a) underperforming relative to peers or b) undervalued relative to peers.
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