I continue to receive a lot of inquires about EBITDA multiples.
Previously, I spoke a bit about what EBITDA includes and what it excludes. A common retort to the question of EBITDA multiples is often “multiple of what”. Sometimes people interpret that to infer “multiple of sales, multiple of net, multiple of EBITDA, etc.” But what the question really driving at is “How was EBITDA calculated?” or “What is and is not included in these EBITDA multiples?” Here are a few items that are often missing from EBITDA multiples.
CAPEX
CAPEX, or capital expenditures, are the funds a company uses to buy or upgrade physical assets. Generally, I divide CAPEX into two buckets – maintenance and growth. Maintenance CAPEX are expenditures to keep a company competitive in the marketplace. Upgrading old computers or replacing that 15-year-old spot welder with the latest Car-O-Liner CTR12000 with dynamic pre-pulse and integrated quality assurance monitoring that recognizes and adjusts for substrates in real time (I think welders are cool). Growth CAPEX on the other hand are expenditures designed to increase existing capacity, such as expanding existing workspace or installing additional lifts, racks and booths.
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