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I Disagree
EBITDA/EV the most powerful value measure

EBITDA/EV the most powerful value measure

11-05-2015 | From the field

Academics typically define value as the ratio of a company’s book value to market value (B/M), but this is just one of many possible ways to define value. A paper by Gray and Vogel * empirically compares the performance of various alternative value measures and finds EBITDA/EV (earnings before interest, taxes, depreciation and amortization to total enterprise value) to be the most powerful one, with a performance almost double that of traditional B/M.

  • David Blitz
    David
    Blitz
    PhD, Executive Director, Head of Quant Selection Research

Although this may be news to academic researchers, we are actually not surprised by this finding, because we have always included a wide range of valuation measures in our research database, and also found EBITDA/EV to be among the most effective ones. In fact, this variable has been included in some of our models for over a decade already. Thus, we see this research as an example of academic literature catching up with known insights among practitioners, rather than the other way around.

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From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others.

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