Valuation
An EBITDA multiple is the purchase price divided by EBITDA. Buyers use it to compare what they pay for different companies.
An EBITDA multiple turns earnings into a price. Divide the enterprise value by EBITDA to get the multiple. Multiply EBITDA by a chosen multiple to get a price.
For example, a company earns $5 million of EBITDA. At a multiple of 6x, the enterprise value is $30 million. At 7x, it is $35 million. The same business, with a stronger story, could draw a higher multiple.
Many factors move the multiple: company size, growth, customer mix, how much of the business depends on you, and how steady the earnings are. Higher quality earnings usually earn a higher multiple.
Owners should treat any number they hear as a starting point. Terms, structure and adjusted EBITDA change what the multiple really means. To see how buyers think, read EBITDA multiples in the lower middle market. Related terms are EBITDA and enterprise value.
Related terms
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