An EV/EBITDA multiple of about 8x can be considered a very broad average for public companies in some industries, while in others, it could be higher or lower than that. For private companies, it will almost always be lower, often closer to around 4x.
A “good” EBITDA margin is industry-specific, however, an EBITDA margin in excess of 10% is perceived positively by most.
The Rule of 40 states that the sum of a healthy SaaS company's annual recurring revenue growth rate and its EBITDA margin should be equal to or exceed 40%. It is a measure of how well a SaaS balances growth with profitability.
The rule of thumb for growth rate expectations at a successful SaaS company being managed for aggressive growth is 3, 3, 2, 2, 2: starting from a material baseline (e.g., over $1 million in annual recurring revenue [ARR]), the business needs to triple annual revenues for two consecutive years and then double them for ...
Generally speaking, most businesses will sell for between 6 and 10 times their annual EBITDA depending on factors such as size, industry, competitive landscape, and geographic location.
Average EBITDA Multiple range: 3.00x – 5.00x
The average EBITDA multiples for a small business typically fall between 3.00x – 5.00x. Valuation experts apply the multiple to the company's EBITDA to determine its fair market value.
CocaCola average ebitda margin for 2022 was 28.83%, a 10.44% decline from 2021. CocaCola average ebitda margin for 2021 was 32.19%, a 3.54% decline from 2020.
LUXURY BRANDS STAVE OFF RECESSIONARY HEADWINDS
This pricing dynamic has continued amid the volatile economic conditions experienced to start 2023, with the average multiple for luxury brands standing at 15.2x EV/EBITDA, outpacing the S&P 500 average of 13.8x EV/EBITDA.
The Main Difference Between SDE and EBITDA
SDE – The primary measure of cash flow used to value small businesses and includes the owner's compensation as an adjustment. EBITDA – The primary measure of cash flow used to value mid to large-sized businesses and does not include the owner's salary as an adjustment.
By ignoring depreciation, Ebitda fails to account for the ongoing capital requirements necessary to replace aging assets. As a result, investors may underestimate the future capital needs of the company, leading to underinvestment and potential operational challenges down the line.
The Interest Limitation Rule (ILR) is intended to limit base erosion using excessive interest deductions. It limits the maximum net interest deduction to 30% of Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA). Any interest above that amount is not deductible in the current year.
A good revenue multiplier typically ranges from 1 to 3 times annual revenue for most small businesses. However, this can vary significantly based on industry, market conditions, and specific business characteristics.
The size of the business and the level of EBITDA itself plays a huge part in selecting an EBITDA multiple, with the general perception that investments in larger businesses have less risk and therefore merit higher multiples.
PepsiCo's EBITDA for the three months ended in Sep. 2024 was $4,812 Mil. Its EBITDA for the trailing twelve months (TTM) ended in Sep. 2024 was $16,259 Mil. During the past 12 months, the average EBITDA Growth Rate of PepsiCo was 10.60% per year.
Average Annual EBITDA means the amount determined by (i) totaling the EBITDA for each full accounting month within the Determination Period; (ii) dividing such total EBITDA by the number of full accounting months within the Determination Period, and (iii) multiplying the result by 12.
EBITDA is typically utilized as a baseline for generating cash flow projections. This is because it strips away the effects of financial decisions, such as debt structure and non-cash accounting factors, providing a clearer picture of operational profitability.
While the "healthy" range for EV/EBITDA varies by industry—in 2024, it ranged from about eight to 30, depending on the sector—this ratio provides critical context when analyzing a company's value.
Common Multiples
Retail businesses: 1.5 to 3.0 (i.e., cash flow x 1.5-3.0 multiple) Service businesses: 1.5 to 3.0 (i.e., cash flow x 1.5-3.0 multiple)
A good EBITDA margin may fall between 15% and 25%, says Simon Thomas, Managing Director of accountancy firm Ridgefield Consulting. Generally, the higher the EBITDA margin, the greater the profitability and efficiency of a company.
A service-based business with $1 million in sales was valued at 2x revenue due to its reliance on human capital and limited scalability. Despite strong profitability, the business's valuation was $2 million, highlighting the importance of industry-specific factors in determining value.
Generally, a good EBITDA margin is considered to be above 15% for most sectors. However, industries such as technology and healthcare may have higher expectations, often aiming for margins above 20% or even higher.