| Author |
Message |
basant
Admin Group
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
|
   Topic: EV to EBIDTA - An important tool.
Posted: 17/Feb/2008 at 4:24pm |
Originally posted by gopal
TEDies,
Just a small really technical question :--
How is EBITA collected / calculated and what is its significance
do explain with some easy example and calculation
thnx |
It is EBIDTA - Earning before Interest Depreciation taxes and Amortization. It assumes great signififcance because we are dealing with profits before adjusting for the most variable items:
Interest - Generally affected by market forces and companies can show higher profits depending on whether interest rates are low and lower profits when interest rates are high.COmpany efficiency never comes into picture here. Theoratically interest cost for a company in steady state (not expanding) should go to zero that is because with whatever cash flow it is generating it can pay off its debt and become debt free. That is why for some old companies we have zero debt and the new ones have high debt.
Depreciation- Theoratically depreciation also goes to zero once you have written off all plant and machinery and before the machinery needs to change. Also this is more acase of methods straight line/diminishing etc so is influenced by management policy.
Genreally EV/EBIDTA is used to analyse companies in growth phase which are inbvesting in areas whose cash flow could take a few quarters to come back and is a more robust method for analysing growth companies.
Finally it is the net profit that counts and EV/EBIDTA is a intermediate tool for analysis.
EV= Market cap + Debt - Cash(Short term Investments)
|
|
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
 IP Logged |
|
|
|
 |
|
gopal
Senior Member
Joined: 26/Jan/2008
Online Status: Offline
Posts: 913
|
Posted: 17/Feb/2008 at 4:37pm |
Basantji,
but most sites like rediff money, etc do not show EV to EBIDTA for compnaies ..... so do we need to calculate this our self always
thnx
|
|
Women are like the stock market Coz they're irrational n can bankrupt u if u're not careful
|
|
IP Logged |
|
|
|
smartcat
Senior Member
Joined: 29/Mar/2007
Location: India
Online Status: Offline
Posts: 4243
|
Posted: 17/Feb/2008 at 4:58pm |
Generally, doesn't the market capitalization capture the true value of the company? This is on the assumption that price of a stock reflects everything - including the risks on the balance because of debt.
| Generally EV/EBIDTA is used to analyse companies in growth phase |
Take 2 companies which are in their growth phase and not yet cash flow positive - say Bharti and RCOM.
Bharti FY08E EV/EBIDTA: 14.7
RCOM FY08E EV/EBIDTA: 16.2
What do I infer from this?
|
|
IP Logged |
|
|
|
basant
Admin Group
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
|
Posted: 17/Feb/2008 at 5:40pm |
A company with a market cap of Rs 200 crores and a debt of Rs 800 crores does not give you ownership at Rs 200 crores. The first rights to the company's assets lie with the secured creditors so thinking that the company is available at Rs 200 crores is incorrect because unless the debts are paid off the company isn't there for the shareholders as far as ownership of assets are concerned.
|
|
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
|
IP Logged |
|
|
|
gopal
Senior Member
Joined: 26/Jan/2008
Online Status: Offline
Posts: 913
|
Posted: 17/Feb/2008 at 6:48pm |
basant ji / smart cat ji,
From financial cites I can get PE, EPS, dividend, market cap, but from where is debt of a company displayed
so is high EBIDTA good for company or is a low EBIDTA good for compnay
thnx
|
|
Women are like the stock market Coz they're irrational n can bankrupt u if u're not careful
|
|
IP Logged |
|
|
|
smartcat
Senior Member
Joined: 29/Mar/2007
Location: India
Online Status: Offline
Posts: 4243
|
Posted: 17/Feb/2008 at 10:34pm |
|
You will get the EV/EBIDTA number from most brokerage reports.
|
|
IP Logged |
|
|
|
gopal
Senior Member
Joined: 26/Jan/2008
Online Status: Offline
Posts: 913
|
Posted: 17/Feb/2008 at 11:18pm |
Smart cat bhai,
These brokerage reports are available on which site from where I can read.
Can u plz provide EV to EBIDTA for below stocks
- rnrl
- rpl
- ril
- rel cap
- l & t
- punj llyod
- yes bank
- dish tv
- idfc
- pantaloon retail
- trent
- indian hotel
- kotak mahindra bank
Thnx in advance
also bhai my basic querry remains is high EBIDTA good or is low EBIDTA good
|
|
Women are like the stock market Coz they're irrational n can bankrupt u if u're not careful
|
|
IP Logged |
|
|
|
kumardiwesh
Senior Member
Joined: 26/May/2008
Location: India
Online Status: Offline
Posts: 721
|
Posted: 14/Jun/2008 at 6:02pm |
|
I didn't get it.
Whether low EV/EBITDA is good or high EV/EBITDA?
|
|
"History does not tell you the probability of future financial things happening" - Warren Buffett
|
|
IP Logged |
|
|
|
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
