Ifwewanttospecifyenterprisevalueasamultipleofthis
year’s operatingincome, theequations willbemodified to
include a one-year growth term in the numerator:
Otherthingsremainingequal,bothEV/EBITandEV/EBIT(1
−t)willincreaseasthegrowthrateincreasesandthecostof
capital decreases. They will both also increase as the
reinvestment rate decreases (for any given growth rate).
However, given our earlier discussion of growth being a
productofthereturnoncapitalandthereinvestmentrate,this
isequivalenttostatingthattheenterprisevaluemultipleswill
increaseasthereturnoncapitalincreases,holdingallother
variables fixed.
ToanalyzeEV/EBITDAmultiples,webeginbystatingthe
free cash flow to the firm in terms of EBITDA:
Substitutingthisequationwithinputs forthenextyearinto
the stable growth firm valuation model, we get:
DividingthroughbyEBITDAyieldsthedeterminantsofthe
EV/EBITDA multiples: