withtheaverageandmedianbutalsoincludingthe10thand
90th percentilesof thedistribution.(Chapter 8 reported on
January 2005 numbers.
TABLE 9.3 Distributional Characteristics—EV/Operating
Income Multiples
Liketheequityearningsmultiplesdescribedinthepreceding
chapter, multiples of operating income have large positive
outliers,pushingtheaveragevalueswellabovethemedian
values.
Lookingatthedistributionsofvaluemultiplesalsoprovides
uswithasimplewayoftestinganddebunkingwidelyused
rulesofthumbin investingand portfoliomanagement. One
ruleofthumbusedinacquisitionsandportfoliomanagement
isthatfirmsthattradeatlessthanseventimesEBITDAare
cheap.Thefactthattherearealmost1,500firmsintheUnited
StatesthattradeatlessthanseventimesEBITDAshouldcast
doubt on this rule of thumb.
Thereisonefinalpointworthmakingaboutoperatingincome
multiplesingeneral,andEBITDAmultiplesinparticular.Far
fewer firms have negative EBITDA than have negative
earnings per share or negativenet income. Since earnings