Which is Best: EV/EBITDA, EV/EBITA, or EV/EBIT? Adherence to Development and Reporting Standards in Family Law Litigation
When
applied correctly, the Market Approach can link value to market
evidence and help support a thorough and well-reasoned valuation.
However, valuation analysts often struggle with a variety of challenges
when applying the Market Approach that include locating and selecting
good comparable companies, selecting or calculating various valuation
multiples from reported data, and weighting or selecting indications of
value derived from various applied multiples. Recently published
research from Doron Nissim at the Columbia Business School at Columbia
University NY may shed some light on the best measure of operating
performance in the context of equity valuation and, thus, which
measures may deserve more weight or consideration in deriving value.
All three enterprise value multiples (EBITDA, EBITA, and EBIT) perform
reasonably well in explaining market valuations. The superiority of
EBITDA, however, in explaining equity valuations means this multiple
should be given material consideration in any valuation using a
relative valuation approach.
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