Would you rather have $1 increase in EBITDA or Unlevered Free Cash Flow?

I would say one dollar of EBITDA because you get a multiple.

Anyone agree or disagree?

What do you mean by, “you get a multiple”?

I disagree.


Yes! One might say that an increase in EBITDA, because it will increase EV based on EV/EBITDA multiple.

From a PE point of view as you look to exit.

If you have a $1 increase in EBITDA, what’s your increase in unlevered free cash flow?

If you have a $1 increase in unlevered free cash flow, what’s your increase in EBITDA?

No one can disagree to see the related effects on many variables with changes in EBITDA but the thing is in LBO & M&A, top level gives high weights to entry and exit multiples to determine purchase price. Value of any business is in the mind of C-Level, free from subjective assumptions of discounted free cash flow valuation methodology.

It is not necessary to stick to EBITDA multiple only, relevant multiple to buy and sell a company is industry specific for example Pharmaceutical companies in my country sells at Revenue Multiple not EBITDA Multiple.

100% FCF.

EBITDA is an input to arrive at FCF; a $1 increase in FCF would imply that your impact to EBITDA (tax-affected) must be greater than $1.

Probably, though not guaranteed. It depends on the level of non-cash charges.

Nevertheless, as a general rule a $1 increase in free cash flow implies a greater than $1 increase in EBITDA.

Which was my earlier point.

Non-cash charges would be added back, so not sure how the ‘level’ would impact it? If you have $1 of FCF, that would imply that any combination of non-cash, capex, NOWC delta would result in EBITDA >=$1.

For a given amount of FCF, the greater the non-cash charges, the greater the EBITDA, ceteris paribus.