Quick question. I know they say you should use EV/EBITDA for capital intensive type company's but I don't understand why. If you want to compare companies that are capital intensive and that's a major part of their business, wouldn't you want to use a multiple that includes an interest charge? Or is it because capital structure can be changed so best to exclude it?
Thanks作者: FinancialAnaly 时间: 2011-7-11 19:22
second part is more correct. we are trying to compare companies here. We want to exclude the effects of all that debt. Some would say this is a dumb idea but i think it helps get a better feel for pure earnings power rather than say EPS which is net income and after all the interest and stuff. Feel free to correct me if I'm wrong.作者: madaochenggong 时间: 2011-7-11 19:22
It depends what you are comparing....ev/ebitda is good for comparing firms with different capital structure. For capital intensive firms I would look at various cash flow and coverage ratios.作者: Swanand 时间: 2011-7-11 19:22
EV/EBITDA is frequently used to compare capital intensive companies because EBITDA is pre-depreciation and amort. So, even if the firms are using different dep methods, they can still be compared. Capital intensive firms have major dep. expense.
