EV/EBITDA is one of the most popular methods for comparing companies across industries and estimating valuation. Presenting 2021 EV/EBITDA averages of public limited companies by industry.
“Not everything that can be counted counts, and not everything that counts can be counted.” — Albert Einstein
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What is EV / EBITDA?
Enterprise Value / EBITDA – also known as EBITDA multiple is an easy and popular way to measure the valuation of a company. EBITDA is a cleaner analysis of the intrinsic profitability of a company and hence used as a benchmark for comparison across industries, geographies and markets.
In this article, we publish the 2021 data of global average EV / EBITDA multiple from ~45000 public companies spanning 90 industries as per Capital IQ data published by Aswath Damodaran, Dean of Valuations, NYU Stern University.
But before we move ahead, first the basics of EV and EBITDA and how we calculate it.
Enterprise Value is the price you pay to acquire an enterprise or a company. When you buy a company, you pay the equity market capitalization, take over the debt and you get the cash balance as a credit.
It’s most basic form of expression (without any acquisition premium is)
Enterprise Value (EV) = Market Value of Equity + Debit – Cash
EBITDA is a good proxy for cash flow of a business and indicates the profit a company produces before it pays the debt holders and the government. EBITDA suggests how a company is doing on a unit economics basis and how it is performing even when the earnings are negative.
EBITDA also indicates the payback period of your investment in the company. e.g. if the EV / EBITDA is 4x, that means it would take 4 years to recover the cost of acquiring the company through EBITDA.
EBITDA = Operating Profit + Depreciation + Amortization
You can read more about EBITDA here.
EV / EBITDA multiple is calculated as follows:
MULTIPLE = EV / EBITDA
A good EV / EBITDA multiple is one that isn’t skewed by an outlier data point or doesn’t have any misrepresentation and closely aligns with the core business of the company. EV / EBITDA is an approximation, at its best and it should not be considered in isolation.
That being said, let us move on the industry multiples.
This list constitutes EV / EBITDA of ~45,000 public companies across US, China, Japan, India, NZ, Australia and Europe. All the negative EBITDA companies have been removed.
Also worthwhile to note, the industry multiples are an average of the number of firms mentioned for the particular industry. A particular company’s EV/EBITDA multiple might differ from the overall average based on the size and market of the company.
2021 EV / EBITDA multiples by industry
As you can see above, EBITDA multiples for certain industries are very high. While these averages are global, it shows market’s trust on bigger players especially at the time of Covid. These multiples are from Jan 2021 and i remember how every charts were up and to the right reflecting the frothiness of the markets six months back.
The situation still holds true and considering that the S&P 500 has been charting new highs everyday since the past 7 days, the EV / EBITDA multiples for most industries are at an all-time high.
Briefly, three trends emerge out:
- Higher profitability margins have higher EBITDA
- Stable profitability that varies minimally will have a higher EBITDA
- High potential growth in the short-term future will have a higher EBITDA
It’s important to reiterate that this global comparison is approximation at best and is an industry indicator for calculating a quick and easy valuation. For an individual subject business, there is more value in doing thorough valuation.
Need help determining the fair value of your business?
At Samkhya, we believe revenue cannot be forecasted 15% month-on-month. We build a growth model based on the different channels of growth and provide a robust forecast of revenue, expenses, and cash flow. This in turn helps to discover your company’s fair value through three different valuation methods, coupled with scenario analysis and an investment memo.
Give us a call to see how we can help build a compelling story for your company that not only attracts more investors but helps you negotiate better terms.
*Our gratitude to Aswath Damodaran, Dean of Valuation, NYU Stern and Capital IQ for taking extraordinary efforts to extract, clean and publish the data.