Question #10
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 4
Status: Correct
Correct Answer: B
Question
Which of the following is a disadvantage to using EV/EBITDA?
Answer Choices:
A. EBITDA is useful for valuing capital-intensive businesses with high levels of depreciation and amortization
B. EBITDA is usually positive even when EPS is not
C. Since FCFF captures the amount of capital expenditures, it is more strongly linked with valuation theory than EBITDA
Explanation
Since FCFF captures the amount of capital expenditures, it is more strongly linked with
valuation theory than EBITDA. The other statements are advantages.