What is the difference?

EV/EBITDA vs ROIC

Enterprise Value to EBITDA

Return on Invested Capital

What is it?

Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) or Enterprise Multiple, is a measure of a company’s value mainly used to evaluate acquisition targets.

Return on Invested Capital is a profitability metric used to measure return on capital investments. It is calculated by dividing Net Operating Profit After Tax (NOPAT) by invested capital.

Formula

ƒ Sum(Enterprise Value) / Sum(EBITDA)
ƒ Sum(NOPAT) / Sum(Invested Capital)

Example

A company has a market capitalization of $50M, debt of $1M, cash to the amount of $400K, and an EBITDA of $5M. Enterprise Value is market cap + debt - cash which is $50M + $1M - $0.4M = $50.6M. EV / EBITDA would be $50.6M/$5M which is 10.12x.

At the end of the year, NOPAT is $3M and invested capital is $18M. In this case, ROIC at the end of the year is about 16.7%.

Published and updated dates

Date created: Oct 12, 2022

Latest update: Oct 12, 2022

Date created: Oct 12, 2022

Latest update: Oct 12, 2022