We were unable to discover any ‘magic’ qualities associated with stocks selling below liquidation value. — Joel Greenblatt (How the Small Investor Can Beat the Market)
Enterprise Multiple = Earnings before interest, taxes, and depreciation & amortization, (“EBITDA”) divided by Enterprise Value (“EV”).
We need to understand the use of EBITDA, Why we must use EV, and the requirement to use pre-tax owner’s earnings or EBITDA – maintenance capex (“MCX”).
Placing EBITDA into Perspective (from the prior post) Suggested reading
EV The Price of a Business Understanding and calculating EV. Suggested reading
Beginning lesson on Enterprise Value for beginners (Video, Khan Academy)
Pop Quiz: Why do you include minority interests with EV?
Why you use Enterprise Value (Review)
Minority Interests (Review)
Chapter 9 EV Multiples Only if you dare. Heavy reading. Voluntary.
Let’s tackle really grasping the use of EV, EBITDA, and EBITDA – MCX
I will also send out the Little Book via email as supplementary reading for this chapter.