Post by Admin/YBB on Sept 26, 2021 13:34:04 GMT -6
What is EBITDA? Pronounced as Eee-but-daa, it is an acronym for cash flow defined as earnings (E) before (B) interest (I), taxes (T), depreciation (D) & amortization (A). Companies have some flexibility in how they formally deal with these items. For a company undergoing management or ownership changes, EBITDA as a gross number takes on special significance. Another data point is EV, the ENTERPRISE VALUE that is the sum of market-cap & net debt (gross debt minus cash); this is what it would take to buy a company or take it private, not just the market-cap. For an entire company, the ratio EV/EBITDA determines its overall value in relation to its overall profits & a buyer of the entire company would be interested in that ratio; there are industry benchmarks for this ratio. FREE CASH FLOW is the cash flow net of expenditures necessary to sustain the current business. Businesses have different levels of expenditures needed to sustain current businesses – they are high for industrial companies but low for software & real estate companies.
The shareholders (the equity owners) of companies look at 2 different numbers: earnings per share (E or EPS) that may be used for dividends, capital expenditures (capex) & retained earnings; & the share price P (market-cap divided by shares outstanding). This leads to the popular P/E ratio; earnings E may be trailing (past), forward (estimated), formal GAAP, or creative non-GAAP. The P/E ratios depend on the general market conditions, interest rate environment & company specific expectations. If 10-year average of earnings is used, then there is PE10 or CAPE (also Shiller PE); it has been elevated for quite a while. Many early-stage companies don’t have earnings & other measures of their health & growth are used (cash flow, sales growth, cash burn rate, etc).
The shareholders (the equity owners) of companies look at 2 different numbers: earnings per share (E or EPS) that may be used for dividends, capital expenditures (capex) & retained earnings; & the share price P (market-cap divided by shares outstanding). This leads to the popular P/E ratio; earnings E may be trailing (past), forward (estimated), formal GAAP, or creative non-GAAP. The P/E ratios depend on the general market conditions, interest rate environment & company specific expectations. If 10-year average of earnings is used, then there is PE10 or CAPE (also Shiller PE); it has been elevated for quite a while. Many early-stage companies don’t have earnings & other measures of their health & growth are used (cash flow, sales growth, cash burn rate, etc).