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EV/EBITDA

A valuation multiple equal to enterprise value divided by EBITDA, widely used in both comparable company and precedent transaction analysis because it is capital-structure-neutral. It becomes meaningless when EBITDA is negative, in which case a revenue multiple such as EV/Sales is typically used instead.

Practice questions using EV/EBITDA

Original questions written against the published FINRA and NASAA exam content outlines — not actual exam questions. Every choice is explained.

Meridian Robotics has an enterprise value of $440 million and EBITDA of $55 million. What is its EV/EBITDA multiple?

  1. A.0.125xWrong. This inverts the ratio (EBITDA ÷ EV).
  2. B.$495 millionWrong. This adds the two figures; EV/EBITDA is a multiple, not a dollar sum.
  3. C.$385 millionWrong. This subtracts the two figures; EV/EBITDA is a ratio, not a difference.
  4. D.8.0xCorrect. $440M ÷ $55M = 8.0x.

Why: EV/EBITDA = $440M ÷ $55M = 8.0x.

A peer set trades at an average EV/EBITDA multiple of 9.0x. Fictional private target Larkspur Components has EBITDA of $30 million, total debt of $50 million and cash of $10 million. Applying the peer multiple, what is Larkspur's implied equity value?

  1. A.$270 millionWrong. This is implied enterprise value; it has not yet been bridged to equity value.
  2. B.$310 millionWrong. This adds debt instead of subtracting it.
  3. C.$220 millionWrong. This subtracts cash instead of adding it.
  4. D.$230 millionCorrect. $270M − $50M + $10M = $230 million.

Why: Implied EV = peer multiple × target EBITDA = 9.0x × $30M = $270M. Implied equity value = EV − debt + cash = $270M − $50M + $10M = $230 million.

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