John Milne

When it comes to acquisition valuations , relying solely on EBITDA multiples often provides an incomplete picture. While EBITDA captures a company's operational performance, it overlooks key aspects like financial stability, liquidity, and long-term profitability. To gain a more accurate and holistic understanding of a business’s value, incorporating additional financial ratios is essential. Below, I’ll outline seven critical ratios that go beyond EBITDA multiples , explaining their relevance and how they contribute to more precise valuations. 1. Price-to-Earnings (P/E) Ratio The Price-to-Earnings (P/E) ratio is one of the most widely recognized valuation metrics. It compares a company’s market price per share to its earnings per share (EPS). This ratio offers insight into how much investors are willing to pay for each dollar of earnings, making it a useful tool for assessing market sentiment and growth expectations. A high P/E ratio often indicates that the market expects strong ...

When valuing a business, EBITDA multiples often come into play as a popular and straightforward tool. EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, focuses on a company’s core operational performance. By applying a multiple to EBITDA, you can estimate the value of a company while ignoring variables like tax structures, financing decisions, and accounting policies. However, while EBITDA multiples are widely used in mergers and acquisitions (M&A), private equity, and financial assessments, they are not without their limitations. Over my career, I’ve observed both the strengths and pitfalls of this method, and I’ll explain how it works, when it’s useful, and the risks of relying on it exclusively. What Are EBITDA Multiples? EBITDA multiples are used to estimate a company’s value based on its earnings before deductions for interest, taxes, depreciation, and amortization. The formula is simple: Business Value = EBITDA × Multiple The multiple ...