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EBITDA multiples by industry

EBITDA multiple is a financial metric used to evaluate a company's financial health and overall value. EBITDA multiples can vary significantly by industry, making it essential to understand industry-specific EBITDA multiples when evaluating companies in different industries.

EBITDA multiple is calculated using two metrics: EBITDA and Enterprise value (EV). EBITDA multiples, or also known as EV/EBITDA, are calculated by dividing a company's enterprise value by its EBITDA, the formula is as follows:

EBITDA multiple = EV / EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is calulated like this:

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortisation

Enterprise value (EV) is sometimes also referred as the total value of the company. Enterprise value (EV) is basically a modification of market capitalisation value adjusted for the company debts and cash.

EV = Market Capitalisation + Total Debt – Cash and Equivalents

EBITDA multiples are a useful tool for comparing companies in the same industry, evaluating a company's value, and making informed investment decisions. However, investors should be aware of the limitations of EBITDA multiples and consider other important factors when evaluating a business, such as a company's management team, competitive positioning, and market trends.

EBITDA Multiples by Industries

Here is a table showing EBITDA multiples by industries in the US as of Dec 2024:

Industry Average EBITDA Multiple Number of companies
Advertising Agencies 16.32 24
Aerospace & Defense 15.51 53
Agricultural Inputs 14.73 11
Airlines 9 11
Apparel Manufacturing 14.33 16
Apparel Retail 11.37 29
Asset Management 13.38 77
Auto Manufacturers 8.64 16
Auto Parts 8.75 47
Auto & Truck Dealerships 11.45 13
Banks - Diversified 16.43 6
Banks - Regional 11.55 299
Beverages - Non-Alcoholic 18.66 12
Beverages - Wineries & Distilleries 18.02 7
Biotechnology 15.68 514
Broadcasting 13.14 15
Building Materials 15.32 9
Building Products & Equipment 13.14 29
Business Equipment & Supplies 9.3 7
Capital Markets 14.29 37
Chemicals 9.95 18
Communication Equipment 27.98 45
Computer Hardware 21.63 27
Conglomerates 11.19 13
Consulting Services 15.33 17
Consumer Electronics 33.63 11
Credit Services 13.48 45
Department Stores 7.89 5
Diagnostics & Research 22.32 64
Discount Stores 17.46 8
Drug Manufacturers - General 20.16 12
Drug Manufacturers - Specialty & Generic 18.5 45
Education & Training Services 11.28 17
Electrical Equipment & Parts 15.51 41
Electronic Components 17.66 32
Electronics & Computer Distribution 12.09 5
Engineering & Construction 15.9 30
Entertainment 20.16 39
Farm & Heavy Construction Machinery 11.21 22
Farm Products 10.98 16
Financial Data & Stock Exchanges 21.69 11
Food Distribution 11.16 9
Footwear & Accessories 12.74 11
Furnishings, Fixtures & Appliances 11.79 21
Gambling 9.76 11
Gold 10.65 28
Grocery Stores 11.19 10
Healthcare Plans 12.92 12
Health Information Services 22.62 32
Home Improvement Retail 14.12 7
Household & Personal Products 14.41 25
Industrial Distribution 16.33 17
Information Technology Services 17.93 53
Insurance Brokers 18.45 12
Insurance - Diversified 12.13 12
Insurance - Life 8.91 14
Insurance - Property & Casualty 9.96 37
Insurance - Reinsurance 4.08 8
Insurance - Specialty 8.45 17
Integrated Freight & Logistics 13.52 16
Internet Content & Information 20.24 40
Internet Retail 17.27 25
Leisure 14.67 25
Lodging 18.91 9
Luxury Goods 9.97 6
Marine Shipping 4.77 24
Medical Care Facilities 17.64 39
Medical Devices 19.74 97
Medical Distribution 13.28 7
Medical Instruments & Supplies 20.07 45
Metal Fabrication 12.57 12
Mortgage Finance 13.85 17
Oil & Gas Drilling 5.29 7
Oil & Gas E&P 5.57 61
Oil & Gas Equipment & Services 7.87 49
Oil & Gas Integrated 6.33 6
Oil & Gas Midstream 8.76 36
Oil & Gas Refining & Marketing 8.61 17
Other Industrial Metals & Mining 6.61 18
Other Precious Metals & Mining 15.51 12
Packaged Foods 13.65 43
Packaging & Containers 11.95 20
Paper & Paper Products 11.62 5
Personal Services 13.24 11
Pollution & Treatment Controls 21.09 10
Publishing 13.26 7
Railroads 12.24 8
Real Estate - Development 11.55 10
Real Estate Services 17.37 26
Recreational Vehicles 12.75 14
REIT - Diversified 13.57 20
REIT - Healthcare Facilities 18.3 18
REIT - Hotel & Motel 10.5 15
REIT - Industrial 17.29 16
REIT - Mortgage 21.2 39
REIT - Office 14.87 24
REIT - Residential 18.02 18
REIT - Retail 15.34 24
REIT - Specialty 18.76 16
Rental & Leasing Services 8.26 20
Residential Construction 8.7 20
Resorts & Casinos 11.93 18
Restaurants 14.8 43
Scientific & Technical Instruments 22.5 24
Security & Protection Services 11.24 14
Semiconductor Equipment & Materials 29.32 25
Semiconductors 29.51 66
Software - Application 35.11 192
Software - Infrastructure 28.73 98
Solar 25.68 14
Specialty Business Services 11.76 25
Specialty Chemicals 12.32 44
Specialty Industrial Machinery 17.38 77
Specialty Retail 12.71 38
Staffing & Employment Services 13.51 23
Steel 8.24 15
Telecom Services 11.39 33
Thermal Coal 5.75 9
Tobacco 11.64 5
Tools & Accessories 13.48 10
Travel Services 12.75 11
Trucking 9.36 12
Utilities - Diversified 11.03 15
Utilities - Regulated Electric 11.8 24
Utilities - Regulated Gas 11.75 14
Utilities - Regulated Water 12.86 13
Utilities - Renewable 11.8 11
Waste Management 18.31 12

As shown in the table, the Software - Application industry has the highest average EBITDA multiple of 35.11x, followed by Consumer Electronics at 33.63x. In contrast, the Insurance - Reinsurance industry has the lowest average EBITDA multiple of 4.08x. These differences in EBITDA multiples highlight the importance of understanding industry-specific factors that affect a company's financial health and performance.

Industries with lowest EBITDA Multiple

Industries with the lowest EBITDA Multiple are presented in the chart and table below. The chart also allows filtering by sector so you can explore the industry EBITDA Multiple ranking in each sector.

Industry Average EBITDA Multiple Number of companies
Insurance - Reinsurance 4.08 8
Marine Shipping 4.77 24
Oil & Gas Drilling 5.29 7
Oil & Gas E&P 5.57 61
Thermal Coal 5.75 9
Oil & Gas Integrated 6.33 6
Other Industrial Metals & Mining 6.61 18
Oil & Gas Equipment & Services 7.87 49
Department Stores 7.89 5
Steel 8.24 15

Industries with highest EBITDA Multiple

Industries with the highest EBITDA Multiple are shown in the following chart and table. You can further refine the industries in the chart by sector.

Industry Average EBITDA Multiple Number of companies
Software - Application 35.11 192
Consumer Electronics 33.63 11
Semiconductors 29.51 66
Semiconductor Equipment & Materials 29.32 25
Software - Infrastructure 28.73 98
Communication Equipment 27.98 45
Solar 25.68 14
Health Information Services 22.62 32
Scientific & Technical Instruments 22.5 24
Diagnostics & Research 22.32 64

Factors that Influence EBITDA Multiples

Several factors can influence EBITDA multiples, including:

  • Industry-specific factors
  • Market trends
  • Company-specific factors
  • Macro economic conditions

Understanding these factors can help investors evaluate a company's EBITDA multiples accurately and make informed investment decisions.

Why EBITDA Multiples are Different Across Industries

EBITDA multiples are different across industries because of various factors that affect the company's financial health and performance that are specific to that industry. For instance, industries with high growth potential, high margins, and low levels of competition tend to have higher EBITDA multiples. On the other hand, industries with low growth potential, low margins, and high levels of competition tend to have lower EBITDA multiples. Some of the factors that affect EBITDA multiples across industries include:

Barriers to Entry

Industries with high barriers to entry (commonly referred as business moats) tend to have high EBITDA multiples. This is because companies in these industries are perceived as protected from new competitors, which leads to higher profit margins and revenue growth rates.

Examples of industries with high barriers to entry include the healthcare, technology, airlines, telecommunications, and pharmaceutical industries. These industries have significant obstacles or costs for new entrants to establish themselves, such as extensive regulation, high capital requirements, strong intellectual property protection, and expertise required to develop and maintain innovative products or services. This makes it challenging for new companies to enter the market and compete with established players.

Capital Intensity

Industries that require significant capital expenditures tend to have low EBITDA multiples. This is because the high capital requirements lead to lower profit margins, which results in lower EBITDA multiples.

The oil and gas, manufacturing, utilities, construction, and transportation industries are examples of capital-intensive industries that require significant investments in physical assets such as machinery, equipment, and facilities. These investments can be a significant barrier to entry for new companies, as they require substantial capital and access to financing. Companies in these industries must make ongoing investments in order to remain competitive and maintain their operations.

Competition

Industries with high levels of competition tend to have lower EBITDA multiples. This is because companies in these industries face pressure to keep prices low, which results in lower profit margins and revenue growth rates.

The retail, food and beverage, hospitality, advertising and media, and transportation industries are examples of highly competitive industries with low EBITDA multiples. These industries have intense competition, resulting in lower profitability and valuations. Companies in these industries must focus on cost control, differentiation, and innovation to remain competitive and profitable. Investors tend to value companies in these industries based on factors beyond just EBITDA multiples, such as growth potential, market share, and management expertise.

Advantages and Limitations of EBITDA Multiples

EBITDA multiples have several advantages and limitations when used to asses a company value. EBITDA multiples are a popular method for valuing businesses due to their simplicity and ease of derivation from financial statements.

Advantages of EBITDA Multiples

  • EBITDA multiples are straightforward and easy to calculate.
  • EBITDA multiples are a useful tool for comparing companies in the same industry.
  • EBITDA multiples can be useful for evaluating a company's financial health.

Using EBITDA multiples however has some limitations, such as not providing a direct value for the business and being subject to approximation based on peer metrics. Additionally, since EBITDA is not officially defined by accounting regulations, it is vulnerable to misrepresentation and carries a significant risk of error. Therefore, while EBITDA multiples offer a quick and easy way to determine value, investors must exercise caution and consider other factors when evaluating a business's true worth.

Limitations of EBITDA Multiples

  • EBITDA multiples do not consider a company's capital structure.
  • EBITDA multiples can be misleading if a company has high debt levels or significant non-recurring expenses.
  • EBITDA multiples do not consider a company's growth potential.

When are EBITDA multiples by industry useful

EBITDA multiples are useful for evaluating stocks or making portfolio decisions when there is comparability. Meaning we are comparing very similar businesses, with similar capital structure that operate in a similar way, such as in the case of income-producing properties with uniform comparable properties. However, it becomes difficult to use EBITDA to determine value for tangible and intangible assets that lack comparability. In rare situations, EBITDA can be used by making adjustments and comparisons. In most other situations, such as comparing two technology companies with different market demographics and consumer markets, making comparisons with EBITDA can be difficult.