Explanation:
The EV/EBITDA multiple is a key metric for assessing valuation, where a lower multiple suggests potential undervaluation.
$100M / $8M = 12.5$150M / $10M = 15.0$200M / $15M ≈ 13.3Company 1 has the lowest EV/EBITDA multiple, indicating it is likely the most undervalued among the three. This aligns with the principle that companies with lower multiples are often considered undervalued relative to their peers.
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An analyst evaluates the following data for three companies within the same industry (in millions):
| Company | Enterprise Value (EV) | EBITDA |
|---|---|---|
| 1 | $100 | $8 |
| 2 | $150 | $10 |
| 3 | $200 | $15 |
Based on enterprise value multiples, which company is most likely undervalued?
A
Company 1
B
Company 2
C
Company 3