We stated that because EBITDA is a flow to both debt and equity, a multiple using total company value

in the numerator was logically more appropriate. Enterprise value to EBITDA responds to this need.

Enterprise Value is total company value (the market value of debt, common equity and preferred equity)
minus the value of cash and investments.

Because the numerator is enterprise value, EV/EBITDA is a valuation indicator for the overall company
rather than common stock.

EV/EBITDA may be more appropriate than P/E for comparing companies with different financial leverage
(debt), because EBITDA is a pre-interest earnings figure, incontrast to EPS which is post – interest.

EBITDA is frequently positive when EPS is negative.

EBITDA will overestimate cash flow from operations if working capital is growing

Enterprise Value = Market value of Common Equity (Number of share outstanding x price per share)

+ Market value of preferred stock (if any)

+ Market value of debt

- Cash and investments

Cash and investments are subtracted because EV is designed to measure the price an acquirer would
pay for a company as a whole. The acquirer must buy out current equity and debt providers but the gets
access to the cash and investments which lower the net cost of the acquisition.

The same logic explains the use of market values: in repurchasing debt an acquirer would have to pay
market prices.

When the analyst oes not have market values, he uses book values (values given in the balance sheet)
To calculate EV/EBITDA

First we need to calculate EBITDA

For EBITDA we going to need some data from the income statement

We took this data from the COMCAST CORPORATION at year two thousand and it is in millions, so…

They had for Net Income two thousand and twenty-one, and then we sume the interest, taxes and
depreciation and finally the amortization and that give us a total of six thousand seven hundred eighty –
five. And that´s our EBITDA.

Then we need to calculate the Enterprise Value

For this, we need the Market value of Common Equity and Market Value of preferred stock which for
this company is aprox 44 thousand then we add the value of long term debt which can be find on the
balance sheet, and it´s 10 thousand and finally we subtract the sum of cash and equivalents plus
investment and that give us a total of = three thousand and seven hundred eleven and as we said the
values are in million.

Now we only have to divide the Enterprise value by the EBITDA and that give us the result that is seven
point five

Because of lack on information and because EV/EBITDA is simply one piece of information to consider in
comparables
Dividend yield is frequently reported to supply the investor with an estimate of the dividend yield
component of total return and also is used as a valuation indicator.

Investors trade off future earnings growth to receive higher current dividends.

The argument about the relative safety of dividends presupposes that the market prices reflect in a
biased way differences in the relative risk of the components of return

Thanks to Gordon growth model we can show that

To see the application in comparables for EV/EBITDA we have this example

Basically the problem consist in that a person is considering the purchase of utility stock for the fund and
for that he has this three large-cap utilities. That are ….

From this we can infer that all of the securities exhibit similar and low market risk. But if we see progess
energy we can see that provides the greatest combitation of dividend yield and growth amounting to
11.19%

An Analyst compares a company with its peers to determine whether it is attractively priced considering
its dividend yield and risk.
  RGI NCI
EBITDA    
Net Income € 49.50 € 8.00
Interest € 3.00 € 5.00
Taxes € 2.00 € 3.00
Depreciation
€ 8.00 € 4.00
Amortization
EBITDA € 62.50 € 20.00
     
  RGI NCI
Enterprise Value    
Market value of common equity € 750.00 € 200.00
Market value of Debt € 50.00 € 100.00
Cash and Investment € 5.00 € 2.00
  € 795.00 € 298.00
   
  RGI NCI
EV/EBITDA 12.72 14.90