Arbitrage Pricing Theory
What is the Arbitrage Pricing Theory? The Arbitrage Pricing Theory (APT) is a theory of asset pricing that holds that an asset’s returns can be forecasted with the linear relationship of an asset’s expected returns and the macroeconomic factors that affect the asset’s risk. The theory was created in 1976 by American economist, Stephen Ross....
EV/EBITDA
What is EV/EBITDA? EV/EBITDA is a ratio that compares a company’s Enterprise Value (EV) to its Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA). The EV/EBITDA ratio is commonly used as a valuation metric to compare the relative value of different businesses. In this guide, we will break down the EV/EBTIDA multiple into its various...
Financial Synergy Valuation
What is Synergy Valuation? When a company acquires another business, it is often justified by the argument that the investment will create synergies. The primary source of synergy in an acquisition is in the presumption that the target firm controls a specialized resource that becomes more valuable if combined with the acquiring firm’s resources. There...
Precedent Transaction Analysis
What is Precedent Transaction Analysis? Precedent transaction analysis is a method of company valuation where past M&A transactions are used to value a comparable business today. Commonly referred to as “precedents,” this method of valuation is common when trying to value an entire business as part of a merger/acquisition and is commonly prepared by analysts...
Enterprise Value (EV)
What is Enterprise Value (EV)? Enterprise Value (EV) is the measure of a company’s total value. It looks at the entire market value rather than just the equity value, so all ownership interests and asset claims from both debt and equity are included. EV can be thought of as the effective cost of buying a...
