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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
    Head of Quant 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

Nuestros investigadores publican multitud de informes basados en sus propios estudios empíricos; también siguen los análisis cuantitativos que hacen los demás. Comentarios de nuestro responsable de análisis cuantitativo para renta variable, David Blitz, sobre publicaciones externas de gran relevancia.

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