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EBITDA Multiple: This ratio measures a business’s EBITDA. For HVAC businesses, EBITDA multiples are usually 2x to 5x. This can depend on the size, profitability, company risks, and market conditions. DiscountedCashFlow (DCF) Method The DCF method predicts a business’s future cashflows.
For valuation purposes, private company transactions typically use two cashflow streams: Sellers Discretionary Earnings (SDE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). A good rule of thumb is to use SDE for earnings up to $500,000 and EBITDA for everything at $500,000 and above.
CTA provides a more industry-specific perspective and is useful when there are limited public comparables. DiscountedCashFlow (DCF): DCF is a fundamental valuation method that estimates the present value of a company’s future cashflows.
The higher the degree of risk or unpredictability of a set of future cashflows, the higher the discount rate. DiscountedCashFlow Value DiscountedCashFlow Value refers to the calculation of a company’s Enterprise Value on the basis of its ability to generate free cashflow over time.
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