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EBITDA is often used in financialanalysis and business valuation because it provides a more standardized and consistent measure of a company's operating performance, especially when comparing companies with different capital structures or when assessing their ability to generate cash from operations.
I spend most of my time in the far less rarefied air of corporate finance and valuation, where businesses try to decide what projects to invest in, and investors attempt to estimate business value.
Data: Trickle to a Flood! It is perhaps a reflection of my age that I remember when getting data to do corporate financialanalysis or valuation was a chore. By the same token, it is impossible to use a pricing metric (PE or EV to EBITDA), without a sense of the cross sectional distribution of that metric at the time.
His approach involves working backward from desired outcomes, such as an EBITDA goal or exit valuation, and breaking these down into actionable steps and KPIs. For instance, if the goal is to grow and exit, we work backward from the desired valuation. What EBITDA profitability does the company need at the expected valuation multiple?
How can you be sure the decisions you are making are taking valuation in the right direction? v360 goes beyond traditional financialanalysis and simple snapshots. Maximizing shareholder value supports many business objectives, including equity-based acquisitions, incenting talent, raising funds, and positioning for exit.
The growing variety and complexity of tasks within the finance function has resulted in the creation of a discipline that is supposed to become a bridge between the finance and business to support decision-making process by leveraging data and technology. This relates to FP&A which stands for financial planning and analysis.
Macro Investment Market Challenges a Headwind for Private Equity Valuations Private Equity Sponsors are facing their most challenging valuation market since the great recession of 2008-09. Heightened inflation and interest rates will continue to be valuation headwinds.
It is perhaps a reflection of my age that I remember when getting data to do corporate financialanalysis or valuation was a chore. Thus, without a sense of what comprises a high or low profit margin for a firm, or what the cost of capital is for the typical company, it is easy to create "fairy tale" valuations and analyses.
The exposure you get in investment banking, I was a leveraged finance banker by background. And so we go back to the basics of what our job should be, risk underwriting, risk assessment, asset prices are different from asset valuation. I mean the valuation is the future cash flow discounted at a risk-free rate plus a risk premium.
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