An EBITDA multiple is calculated as enterprise value divided by EBITDA (likely from the most recent year or a forecasted EBITDA). A buyer’s goal should be to pay as low of an EBITDA multiple as possible. To understand what a reasonable EBITDA multiple is for the business a buyer is contemplating buying, the buyer should find analyze EBITDA multiples from recent transactions in the industry.
The visual below illustrates how an EBITDA multiple is calculated and how a buyer prefers a lower EBITDA multiple.
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As a seller, is it better to have a higher or lower EBITDA multiple?
Sellers want to maximize the EBITDA multiple. Buyers want the opposite – they want as low of an EBITDA multiple as possible. Business brokers will often use EBITDA multiples from recent transactions in the industry to understand what EBITDA multiple a buyer might be willing to pay when they set the purchase price. The visual...
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How to calculate an EBITDA multiple?
An EBITDA multiple is calculated by taking enterprise value and dividing by EBITDA. This ratio allows investors to compare an EBITDA multiple for a potential acquisition to the EBITDA multiple for recent transactions that were executed. The visual below shows how investors can compare EBITDA multiples of three difference companies that vary in enterprise value...
As a seller, is it better to have a higher or lower EBITDA multiple?
Sellers want to maximize the EBITDA multiple. Buyers want the opposite – they want as low of an EBITDA multiple as possible. Business brokers will often use EBITDA multiples from recent transactions in the industry to understand what EBITDA multiple a buyer might be willing to pay when they set the purchase price. The visual...
How to calculate an EBITDA multiple?
An EBITDA multiple is calculated by taking enterprise value and dividing by EBITDA. This ratio allows investors to compare an EBITDA multiple for a potential acquisition to the EBITDA multiple for recent transactions that were executed. The visual below shows how investors can compare EBITDA multiples of three difference companies that vary in enterprise value...
