ValueBit - Drilling Deeper into Cash Flow
Last month we discussed EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a key number in the valuation formula, but if you are a business with regular capital expenditures you may want to focus on EBIT. Often times in these companies, especially some manufacturers, annual “maintenance” capital expenditures will equal depreciation for the year. Buyers know this so they will focus on EBIT in these cases. Buyers will also look at that equipment and machinery and want to make sure that it is in good working order and up-to-date. If they need to replace all your equipment in the near future they will discount the price they are willing to pay you for your business accordingly. Next month we will start talking about the multiplier – the measure of risk that can greatly impact value.
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ValueBits are concise and we hope informative articles written by the partners of Delta Capital Group. We hope you find them of value!
