arbiter
JournalsAccount

Problems with using EBITDA-based valuations in capital-intensive industries

Wayne Lonergan

JASSA: The Finsia Journal of Applied Finance2016article
ABDC B
Weight
0.26

Abstract

In view of the significant commercial, tax and regulatory implications of the valuation outcome, this paper alerts valuers and market participants to the inherent dangers in the uncritical use of the EBITDA multiple-based method in valuing capital-intensive businesses. We show that equity valuations of established capital-intensive firms by EBITDA multiples are more susceptible to distortions than those based on NPAT multiples. These distortions arise from the inherent tendency of the former to overlook idiosyncratic, value relevant, differences below the EBITDA line between the subject company and the 'comparables' from which multiples are derived.

Cite this paper

@article{wayne2016,
  title        = {{Problems with using EBITDA-based valuations in capital-intensive industries}},
  author       = {Wayne Lonergan},
  journal      = {JASSA: The Finsia Journal of Applied Finance},
  year         = {2016},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Problems with using EBITDA-based valuations in capital-intensive industries

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.26

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.00 × 0.4 = 0.00
M · momentum0.20 × 0.15 = 0.03
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.