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 Apr 2024:

Industry Average EBITDA Multiple Number of companies
Advertising Agencies 10.17 22
Aerospace & Defense 16.08 49
Agricultural Inputs 10.64 11
Airlines 8.06 13
Apparel Manufacturing 10.79 17
Apparel Retail 10.23 28
Asset Management 13.09 72
Auto Parts 9.78 46
Auto & Truck Dealerships 8.67 14
Banks - Diversified 14.76 6
Banks - Regional 9.58 276
Beverages - Non-Alcoholic 17.08 9
Beverages - Wineries & Distilleries 15.13 9
Biotechnology 10.11 504
Broadcasting 7.99 16
Building Materials 13.55 7
Building Products & Equipment 12.16 29
Business Equipment & Supplies 11.18 7
Capital Markets 15.23 33
Chemicals 9.82 17
Communication Equipment 15.93 51
Computer Hardware 16.88 29
Conglomerates 15.09 12
Consulting Services 16.97 16
Consumer Electronics 29.55 12
Credit Services 10.54 44
Department Stores 7.64 5
Diagnostics & Research 16.59 67
Discount Stores 15.34 9
Drug Manufacturers - General 17.38 12
Drug Manufacturers - Specialty & Generic 13.5 48
Education & Training Services 8.78 16
Electrical Equipment & Parts 12.9 42
Electronic Components 12.67 30
Electronic Gaming & Multimedia 6.45 7
Electronics & Computer Distribution 9.78 6
Engineering & Construction 14.98 30
Entertainment 13.1 37
Farm & Heavy Construction Machinery 8.88 22
Farm Products 7.89 18
Financial Data & Stock Exchanges 24.62 10
Food Distribution 10.53 9
Footwear & Accessories 10.75 11
Furnishings, Fixtures & Appliances 11.72 19
Gambling 11.27 11
Gold 15.68 27
Grocery Stores 11.55 10
Healthcare Plans 10.93 12
Health Information Services 22.19 32
Home Improvement Retail 13.13 7
Household & Personal Products 11.99 24
Industrial Distribution 16.25 17
Information Technology Services 16.28 53
Insurance Brokers 20 12
Insurance - Diversified 8.78 11
Insurance - Life 9.91 16
Insurance - Property & Casualty 12.16 36
Insurance - Reinsurance 5.14 7
Insurance - Specialty 10.4 16
Integrated Freight & Logistics 9.95 15
Internet Content & Information 18.14 36
Internet Retail 12.63 22
Leisure 12.63 23
Lodging 17.47 9
Marine Shipping 6.05 23
Medical Care Facilities 18.27 39
Medical Devices 19.34 102
Medical Distribution 13.1 7
Medical Instruments & Supplies 18.66 45
Metal Fabrication 11.42 13
Mortgage Finance 12.4 17
Oil & Gas Drilling 5.49 6
Oil & Gas E&P 5.22 64
Oil & Gas Equipment & Services 8.04 43
Oil & Gas Integrated 4.91 6
Oil & Gas Midstream 7.6 37
Oil & Gas Refining & Marketing 6.04 18
Other Industrial Metals & Mining 10.62 15
Other Precious Metals & Mining 14.74 12
Packaged Foods 13.41 42
Packaging & Containers 10.97 22
Personal Services 10.78 10
Publishing 11.41 7
Railroads 13.48 8
Real Estate - Development 11.32 9
Real Estate Services 13.58 24
Recreational Vehicles 9.33 15
REIT - Diversified 12.9 17
REIT - Healthcare Facilities 15.82 15
REIT - Hotel & Motel 10.75 15
REIT - Industrial 16.39 16
REIT - Mortgage 18.88 35
REIT - Office 16.85 24
REIT - Residential 15.77 19
REIT - Retail 14.86 21
REIT - Specialty 17.36 15
Rental & Leasing Services 7.63 19
Residential Construction 7.96 20
Resorts & Casinos 12.16 18
Restaurants 13.01 41
Scientific & Technical Instruments 19.5 24
Security & Protection Services 14.19 14
Semiconductor Equipment & Materials 22.55 26
Semiconductors 25.08 64
Software - Application 28.32 191
Software - Infrastructure 21.76 89
Solar 30.55 13
Specialty Business Services 11.58 26
Specialty Chemicals 13.8 46
Specialty Industrial Machinery 16.63 73
Specialty Retail 11.6 40
Staffing & Employment Services 11.15 23
Steel 9.03 15
Telecom Services 11.31 33
Thermal Coal 3.27 9
Tobacco 9.61 6
Tools & Accessories 15.49 11
Travel Services 11.47 13
Trucking 8.98 11
Utilities - Diversified 10.54 15
Utilities - Regulated Electric 11.24 25
Utilities - Regulated Gas 11.47 14
Utilities - Regulated Water 13.65 12
Utilities - Renewable 10.58 11
Waste Management 18.74 12

As shown in the table, the Solar industry has the highest average EBITDA multiple of 30.55x, followed by Consumer Electronics at 29.55x. In contrast, the Thermal Coal industry has the lowest average EBITDA multiple of 3.27x. 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 3.27 9
Oil & Gas Integrated 4.91 6
Insurance - Reinsurance 5.14 7
Oil & Gas E&P 5.22 64
Oil & Gas Drilling 5.49 6
Oil & Gas Refining & Marketing 6.04 18
Marine Shipping 6.05 23
Electronic Gaming & Multimedia 6.45 7
Oil & Gas Midstream 7.6 37
Rental & Leasing Services 7.63 19

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
Solar 30.55 13
Consumer Electronics 29.55 12
Software - Application 28.32 191
Semiconductors 25.08 64
Financial Data & Stock Exchanges 24.62 10
Semiconductor Equipment & Materials 22.55 26
Health Information Services 22.19 32
Software - Infrastructure 21.76 89
Insurance Brokers 20 12
Scientific & Technical Instruments 19.5 24

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.