How It Works

The Exit EBITDA Multiple Method calculates the terminal value by applying a selected EBITDA multiple to the projected EBITDA of the final year in the forecast period. This method is based on the premise that the business could be sold at the end of the projection period for a price reflective of its EBITDA and comparable sales in the industry. The formula used is:

• EBITDA_{final year}: The projected Earnings Before Interest, Taxes, Depreciation, and Amortization for the final year of the forecast period.
• Selected Multiple: An industry-standard EBITDA multiple reflecting the price businesses are typically sold for relative to their EBITDA.

Advantages of the Exit EBITDA Multiple Method

1. Alignment with Market Conditions: Reflects the value investors might reasonably expect to receive based on current market conditions and industry averages.
2. Simplicity: Provides a straightforward way to estimate the terminal value based on easily understood and applied industry multiples.
3. Adaptability: Can be adjusted based on the perceived risk, growth potential, and market position of the business.