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 Jul 2024:

Industry Average EBITDA Multiple Number of companies
Advertising Agencies 12.47 22
Aerospace & Defense 14.82 49
Agricultural Inputs 13.15 11
Airlines 7 13
Apparel Manufacturing 12.65 16
Apparel Retail 11.5 28
Asset Management 12.68 72
Auto Parts 9.98 46
Auto & Truck Dealerships 9.39 14
Banks - Diversified 16.48 6
Banks - Regional 10.24 273
Beverages - Non-Alcoholic 17.34 9
Beverages - Wineries & Distilleries 13.18 9
Biotechnology 14.98 490
Broadcasting 9.27 16
Building Materials 13.19 7
Building Products & Equipment 12.23 28
Business Equipment & Supplies 11.55 7
Capital Markets 15.01 33
Chemicals 11.53 17
Communication Equipment 23.49 50
Computer Hardware 23.78 28
Conglomerates 11.49 12
Consulting Services 17.95 16
Consumer Electronics 42.43 12
Credit Services 11.23 44
Department Stores 8.19 5
Diagnostics & Research 20.17 66
Discount Stores 17.01 9
Drug Manufacturers - General 23.97 12
Drug Manufacturers - Specialty & Generic 12.12 47
Education & Training Services 9.13 16
Electrical Equipment & Parts 13.97 40
Electronic Components 13.55 30
Electronics & Computer Distribution 9.43 5
Engineering & Construction 16.06 30
Entertainment 13.12 38
Farm & Heavy Construction Machinery 8.85 22
Farm Products 11.19 18
Financial Data & Stock Exchanges 23.04 10
Food Distribution 10.62 9
Footwear & Accessories 10.96 11
Furnishings, Fixtures & Appliances 11.15 18
Gambling 11.15 10
Gold 18.36 27
Grocery Stores 11.6 10
Healthcare Plans 17.26 12
Health Information Services 25.12 30
Home Improvement Retail 13.26 7
Household & Personal Products 12.04 24
Industrial Distribution 14.75 17
Information Technology Services 16.71 53
Insurance Brokers 18.52 12
Insurance - Diversified 8.51 11
Insurance - Life 9.5 14
Insurance - Property & Casualty 11.53 36
Insurance - Reinsurance 5.32 7
Insurance - Specialty 9.08 16
Integrated Freight & Logistics 11.35 15
Internet Content & Information 18.3 36
Internet Retail 17.54 22
Leisure 13.84 22
Lodging 18.13 9
Marine Shipping 6.23 23
Medical Care Facilities 16.76 39
Medical Devices 19.58 97
Medical Distribution 12.49 7
Medical Instruments & Supplies 18.7 45
Metal Fabrication 12.23 13
Mortgage Finance 15.18 17
Oil & Gas Drilling 7.36 6
Oil & Gas E&P 5.93 64
Oil & Gas Equipment & Services 8.38 43
Oil & Gas Integrated 4.87 6
Oil & Gas Midstream 8.27 35
Oil & Gas Refining & Marketing 6.1 18
Other Industrial Metals & Mining 11.05 15
Other Precious Metals & Mining 18.77 12
Packaged Foods 13.05 42
Packaging & Containers 10.12 21
Personal Services 9.55 10
Publishing 11.93 7
Railroads 12.99 8
Real Estate - Development 11.12 9
Real Estate Services 14.84 25
Recreational Vehicles 10.58 14
REIT - Diversified 13.2 17
REIT - Healthcare Facilities 17.9 15
REIT - Hotel & Motel 10.69 15
REIT - Industrial 17.79 16
REIT - Mortgage 21.47 35
REIT - Office 15.55 24
REIT - Residential 18.15 18
REIT - Retail 15.51 21
REIT - Specialty 17.91 15
Rental & Leasing Services 8.51 17
Residential Construction 8.56 20
Resorts & Casinos 10.69 18
Restaurants 12.92 40
Scientific & Technical Instruments 22.26 24
Security & Protection Services 12.14 14
Semiconductor Equipment & Materials 23.76 26
Semiconductors 28.59 64
Software - Application 29 187
Software - Infrastructure 23.32 89
Solar 35.99 12
Specialty Business Services 11.57 25
Specialty Chemicals 14.8 44
Specialty Industrial Machinery 17.06 73
Specialty Retail 11.81 40
Staffing & Employment Services 11.73 23
Steel 6.75 15
Telecom Services 9.39 33
Thermal Coal 4.19 9
Tobacco 10.06 6
Tools & Accessories 14.27 11
Travel Services 11.49 13
Trucking 9.23 11
Utilities - Diversified 11.07 15
Utilities - Regulated Electric 11.56 25
Utilities - Regulated Gas 11.58 14
Utilities - Regulated Water 13.9 12
Utilities - Renewable 11.46 10
Waste Management 19.64 12

As shown in the table, the Consumer Electronics industry has the highest average EBITDA multiple of 42.43x, followed by Solar at 35.99x. In contrast, the Thermal Coal industry has the lowest average EBITDA multiple of 4.19x. 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
Thermal Coal 4.19 9
Oil & Gas Integrated 4.87 6
Insurance - Reinsurance 5.32 7
Oil & Gas E&P 5.93 64
Oil & Gas Refining & Marketing 6.1 18
Marine Shipping 6.23 23
Steel 6.75 15
Airlines 7 13
Oil & Gas Drilling 7.36 6
Department Stores 8.19 5

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
Consumer Electronics 42.43 12
Solar 35.99 12
Software - Application 29 187
Semiconductors 28.59 64
Health Information Services 25.12 30
Drug Manufacturers - General 23.97 12
Computer Hardware 23.78 28
Semiconductor Equipment & Materials 23.76 26
Communication Equipment 23.49 50
Software - Infrastructure 23.32 89

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.