Relationship between growth rate and EBITDA multiple

1
Relationship between growth rate and EBITDA
multiple

• Summer 2009
• Prof. Keith M. Howe
• DePaul University

2
Relationship between growth rate and EBITDA
multiple
CVt CFt1 r - g
CVt EV X EBITDA t1
EBITDA

• Note that
• 1) We can imply the growth rate from the EBITDA
  multiple
• 2) CFt1 EBITDA(1-T) Dep (T) - CapEx - NWC

3
Example

• CFt1 EBITDA(1-T) Dep (T) - CapEx - NWC
• 500 (1-.3) 20(.3) -20 -10
• CFt1 326

5,433 326 0.10
0.04
Assume that r 10 and g 4
5,433 (EV/EBITDA) x
500 (EV/EBITDA) 10.866
When the growth rate is 4, it implies that the
EBITDA multiple is 10.866.