#2 – EBIT, EBITDA or Cash Flow for Business Valuations

Should you use EBIT, EBITDA, Cash Flow or something else to value a business?

In this episode we pull back the curtain and discuss the reasons behind using different levels of profit or cash flow depending on the nature of your multiple. Are you using an income approach (CFME or DCF) or a market approach (Guideline Public Company or Comparable Transactions)? There are different multiples for different methods and situations. You need to know what the multiple represents and where the numerator and denominator actually come from. There are different multiples for different situations and your denominator (EBIT, EBITDA, Cash Flow or something else) just needs to match the denominator in the multiple. The result you get is simply the numerator in the multiple. Sounds simple enough but you need to be clear on how it all works under the hood.

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