Also. they can be calculat differently by different companies. thereby obscuring comparisons between one company’s fundamentals and another’s. . depreciation and amortization will list as expenses. However. the corresponding amounts are usually add back in net income in calculating a company’s Cash Flow from Operations (CFO). Example of Amortization For a loan. amortization can be full. partial. zero (interest only). or negative. The table below uses the mortgage example from above to illustrate the different types and show what the loan balance would be under each scenario. Loan principal = $360.000 Term = 30 years Interest rate = 5% (fix) Payments = monthly Type of Amortization Monthly Payment Loan balance in 30 years Full
On a company's income statement
Private equity. after all. has access email list to funding and thus wants to know how much money a company could make without worrying about interest and non-cash expenses. since much of those figures are subject to being rework when a company changes hands and takes on a new capital structure. EV/EBITDA is also highly useful for analyzing different firms within the same industry that use a different capital structure. For example. if one retail chain owns all their stores while the other leases them. excluding the depreciation of store buildings could give investors a fairer comparison of their underlying economics. EV/EBITDA ratio is that the costs exclud in an EBITDA calculation are. in fact. real expenses.
A major issue with the
Earnings Ratio For the above BY Lists hypothetical example. the P/E ratio would be However. the company would ha will almost always be higher than net income. However. enterprise value could be higher or lower than market capitalization. depending on whether a company holds net cash. or uses debt. Key fact: A company’s market capitalization and enterprise value would be equal if the cash balance equals the debt balance outstanding. assuming there were no minority interests or preferr shares outstanding. Pros And Cons Of EV/EBITDA While most investors first learn about EPS and the Price/Earnings ratio. EV/EBITDA has become a mainstream tool for financial analysis. It’s particularly popular for viewing a company through the lens of being an acquisition target.
