WWII 057: Private Market Valuation with the EBITDA Valuation Method, Investing for the Short-term, Old Money Families
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Main Topic: Private Market Valuation using the EBITDA Valuation Method
Private Market Valuation (“PMV”) is the process of determining how much you would pay for an entire company by applying industry normalized valuation metrics to the company.
There are no short-cuts and completing a rational private market valuation is not a simple plug and play process.
In the world of private equity, most valuations are measured in multiples of EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization. This profit and loss statement based metric purports to estimate the unlevered cash flow of the company, and you would pay some multiple of it, such as eight times or ten times EBITDA,.
To reach a total enterprise value, you would come up with the multiple you want pay and complete the formula Enterprise Value = Multiple * EBITDA.
The formula to value equity using the EBITDA valuation method is:
Equity Value = Enterprise Value – Total Debt – Cash and Cash Equivalent
You will come across EBITDA often when investing and it’s important to understand the good, the bad, and the ugly about EBITDA based valuation.
People want to send me books with EBITDA and I say fine, as long as you pay cap ex. There are very few businesses that can spend a lot less than depreciation and maintain the health of the business.”
Ask JB: How should I invest $50k for the short term? How can my family become Old Money?
submitted 19 minutes ago by GiveChubsAHand