Answer: EBITDA is a proxy for operating cash flow.

## Explanation **Correct Answer: B** **Why B is correct:** 1. **EBITDA as a proxy for operating cash flow** - This is indeed an advantage of the EV/EBITDA multiple. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) serves as a reasonable proxy for operating cash flow because it excludes non-cash expenses (depreciation and amortization) and financing/tax decisions (interest and taxes). This makes it useful for comparing companies with different capital structures, tax situations, and depreciation policies. 2. **Why this is an advantage:** - It provides a cleaner measure of operating performance - Allows for better cross-company comparisons - Less affected by accounting choices and capital structure differences **Why A is incorrect:** - The EV/EBITDA multiple can be negative if EBITDA is negative, so this is not an advantage. A positive multiple is not guaranteed. **Why C is incorrect:** - EV (Enterprise Value) calculation requires the market value of debt. EV = Market Value of Equity + Market Value of Debt - Cash & Equivalents. Therefore, this statement is factually wrong - the multiple DOES require the market value of debt. **Additional context:** The EV/EBITDA multiple is particularly useful because: - It is capital structure neutral - It focuses on operating performance - It's widely used in mergers and acquisitions - It's less affected by accounting differences than P/E ratios This question tests understanding of valuation multiples and their practical advantages in equity analysis.

Author: LeetQuiz .