All,
On Schweser book 3 p.195 they mention that the EV to EBITDA multiple is “positively related to the growth rate in FCFF and EBITDA”.
The FCFF part i can understand, but why EBITDA? Isn’t it on both parts of the multiple equation? And, since the numerator is usually larger, if we sum the same number both to numerator and denominator, the multiple would likely go down, right?
Your quote says that EV/EBITDA is “positively related to the _ growth rate _ [of] EBITDA.”
It doesn’t say that it’s positively related to the _ level _ of EBITDA, which is, of course, silly.
Hi ,
In order to understand conceptually, I always think like this
If a company has higher EBITDA growth in comparison to others, it should trade at higher multiple than others
These ratios are just standardized ratios so that we can make a comparison