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Practitioner's Complete Guide to M&As: An All-Inclusive Reference, with Website by David T. Emott

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Topic 60

EBITDA Valuation Engine

Topic 60 presents the EBITDA Valuation Engine, which provides an accurate valuation result when time constraints do not allow for a more extensive valuation modeling exercise. The results of this valuation engine are compared to the other valuation illustrations presented previously. The spider chart illustration is a useful visual method of presenting interrelated value drivers of volume, variable margin, fixed costs, fixed and variable capital efficiency, tax rates, cost of capital and their impact on economic value added (EVA™)1 and enterprise value over time period T.

The reader is encouraged to take the time to read the text in conjunction with the referenced Appendices to gain the appropriate level of understanding of the subject matter discussed in the narrative. Appendices are either presented at the end of this and each remaining Topic or are available for review and download on this book's companion Web site (see the About the Web Site page for login information).

EBITDA ENGINE OVERVIEW—A SHORTHAND VALUATION METHOD

  • Early in the deal evaluation exercise or when time is short, data on the target are limited in quantity and quality. Precise modeling is not yet needed, or sometimes, in place of a more rigorous computerized discounted cash flow (DCF) exercise, shorthand approximations of value will suffice.
  • The shorthand valuation method, driven by the EBITDA (earnings before interest, tax, depreciation, and amortization) Valuation Engine, ...

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