📦Level Basic - IB Technical #4

Welcome to the 4th edition of Daily Technical Questions presented by TheFinanceGrind

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TECHNICAL QUESTION OF THE DAY

🏭 In what industries is EV/EBITDA commonly used — and why?

💬 How to Answer it in an interview

“EV/EBITDA is most commonly used in industries where:

CapEx is low or stable
Depreciation is not a major factor
And companies have similar capital structures

Some examples include:

Technology 💻 — SaaS, software, IT services: low CapEx, steady EBITDA margins
Telecom 📡 — stable cash flows, EBITDA reflects true earnings power
Consumer Goods 🛒 — especially non-durable goods and packaged food companies
Media & Entertainment 🎬 — where earnings are driven by content/IP and cash generation

In these industries, EV/EBITDA is helpful because it strips out capital structure noise and focuses on core operating performance before non-cash and financing items.”

⚠️ Common Mistakes

1. Using EV/EBITDA for CapEx-heavy businesses 🏗️
– In infrastructure, manufacturing, or energy, EBIT or even FCF-based multiples may be better.

2. Assuming it works for financial institutions 🏦
– It doesn’t. Banks rely on interest income/expense and use P/E or P/BV instead.

💣 Banker-Grade TL;DR

✅ Use EV/EBITDA for:
– Tech (SaaS, software)
– Telecom
– Consumer products
– Media/entertainment

❌ Avoid using it for:
– Banks
– Insurance
– Utilities
– Heavy CapEx industries like airlines, oil & gas

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