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Corporate development groups may have to accept that EBITDA multiple valuations may not be appropriate when buying a category creator. This post is part of the HBR Insight Center Growing the Top Line. Laird Hamilton is my hero. He's not only one of the world's best big-wave surfers but he also created an entirely new category within the sport called tow-in surfing. MORE
Bowen is the Chairman and CEO of Maine Pointe , a firm specializing in driving EBITDA and cash improvements across the areas of procurement, operations, and logistics to enable growth. The following excerpt is from the Introduction of Total Value Optimization: Transforming Your Global Supply Chain Into a Competitive Weapon by Steven J. Bowen. . Your supply chain is the backbone of your company. MORE
times their earnings before interest, tax, depreciation and amortization (EBITDA). By 2014, target price to EBITDA ratios had already fallen to 6.9 times EBITDA. In the early 2000s, Brazil became the darling of corporate investment. It boasted rapid economic growth, abundant natural resources, and a large (and increasingly wealthy) market of 200 million consumers. MORE
and EBITDA margins are 47%. The chart below shows their financial performance over the last few years, with forecasted 2012 revenue of $767M and EBITDA of $339M. market cap is 6x revenue and 13x EBITDA, so not insane multiples on a comparable basis. Scaling is hard. Really hard. MORE
But having a grasp of terms like EBITDA and net present value are important no matter where you sit on the org chart. The most important concepts to grasp are “how to measure profitability, EBITDA, operating income, revenue, and operating expenses,” he says. “Suddenly I needed to know things like EBITDA and how enterprise value was determined,” he says. If you’re not a numbers person, finance is daunting. MORE
Both the primary and secondary buyers added value in the same way — increasing EBITDA through operational improvements (an average of 14% in the first round, 13% the next) and growing revenue by increasing compound annual sales (both by 10%). MORE
times EBITDA (compared to average multiples of 15 at the time). The Essential Advantage : How to Win with a Capabilities-Driven Strategy. by Paul Leinwand and Cesare Mainardi. The conventional wisdom about strategy may be leading your company astray. MORE
But if you also throw in acronyms such as ABC ("activity-based costing"), EBITDA ("earnings before interest, tax, depreciation, and amortization"), and VBM ("value-based management"), only the accountants in your audience will follow you — you'll lose everyone else. It seems obvious that you shouldn't put your audience to sleep, doesn't it? MORE
million EBITDA company for 4x paying $6 million and using 50% debt financing. HBR STAFF. Compensation is, of course, more than money. It includes other aspects such as: how much you enjoy your career, whether it provides fulfillment, how much flexibility you get and how much influence you have over what you do and when you do it. MORE
To be clear, Whole Foods’s financials are still healthy: in FY 2013, its revenue was $12.9B, EBITDA $1.2B, and earnings per share increased by 19%. Whole Foods has a bad taste in its mouth – it recently had to revise both its sales growth and earnings for the third time in six months. As a result, its stock dropped by 19% in one day. And yet investors are jittery over whether the company will be able to deliver the growth necessary to justify its still-hefty valuation. MORE
Business results were outstanding: EBITDA more than doubled in the first year and ROIC increased almost 300%, with fewer sales people. When formulating a strategy, markets and segments are important categories to consider. But a market never buys anything. Only customers buy. To borrow a telecom industry metaphor, a deal with a customer is the “last mile” in connecting any strategy with business development efforts and marketplace results. MORE
billion in revenue, over $1 billion in gross profit and $500 million in EBITDA. I have been thinking lately about how hard it is to scale start-ups. The Lean Start-Up movement, as exemplified in Eric Ries' book The Lean Start-Up , has appropriately focused a great deal of attention on the hard decisions and techniques required to create a company from nothing. MORE
For example, the pervasive use of EBITDA (earnings before interest, tax, depreciation, and amortization) to reflect a company’s performance assumes that the company can operate without having to pay for these costs (I, T, and DA). As Warren Buffett warns , companies that rely on EBITDA are likely spending every dime that comes in and leaving no resources to replace existing capacity to counter competitive threats. MORE
The economics work: Trading the $25 per square foot upfront cost (plus a cost for the land and the infrastructure) for the annuitization of the "margin" gained (in many cases this is an EBITDA of about 40%) from daily consumption (which may well be $300/year and per capita), is an easily fundable proposition, especially if it can be harnessed from a 40- to 100-year tenured residency. MORE
Within three years, ALL's Brazilian rail operations had increased revenues by 50% and tripled EBITDA. Successful companies shape their high-level strategies by relying not on complicated frameworks but on simple rules of thumb. Managers in these organizations translate corporate objectives into a few straightforward guidelines that help employees make on-the-spot decisions and adapt to constantly shifting environments, while keeping the big picture in mind. MORE
EBITDA (earnings before interest, taxes, depreciation, and amortization) is the equivalent of corporate blood pressure. Barnes & Noble had weak blood pressure in 2009, but recently its EBITDA has shown signs of recovery, increasing more than 15% to $65 million in its most recent quarter. It's been nearly a year since Nokia CEO Stephen Elop shot off his burning platform memo as a way of shaking up the phone company's leadership. MORE
From 2008 through 2013, EBITDA (earnings before interest, taxes, depreciation and amortization) margins increased for 20 consecutive quarters, from 5% to 25%. It feels horrible: You’re scaling up aggressively and working harder than ever, but with each passing day you feel more overwhelmed. Your business is a success, but you feel like a failure. MORE
But analysts are judging EBITDA, P/E ratios, quarterly growth, and cashflows – which don’t always correlate with long-term value creation. The most successful, visionary entrepreneurs dream not of millions of dollars, but of a world where their products change culture. But in technology startups, particularly venture-backed technology startups, the current investment climate does not always support that vision. MORE
They believe that a base salary pays the bills, whereas variable compensation, including earnings before interest, taxes, dividends and amortization (EBITDA)-based bonuses, motivates employees to challenge themselves and increase their contribution to the ?rm MORE
For example if you discuss EBITDA (Earnings before interest tax and depreciation) don’t assume that all your employees will understand what you mean. What do you need to do to share your strategic plan? Creating a strategic plan is quite an undertaking for a business. MORE
Joe has also written toolkits for Harvard Business Press including the ROI Toolkit, Understanding EBITDA, and the Business Valuation Toolkit. Financial ignorance carries massive costs. Without an understanding of basic financial concepts, executives are not well-equipped to make decisions related to financial management. Study after study, as well as experts across the economical spectrum, agree that U.S. MORE
On average, we have found that high-reputation companies have higher returns (both Return on Assets and Return on Equity), deliver higher earnings multiples , have higher market/book ratios , and have a higher Enterprise Value/EBITDA ratio – the key measures on which investors assess corporate performance. How do you measure a CEO’s impact? MORE
Financial services professionals may sidetrack us by slinging around financial terms like market cap, P/E, or EV/EBITDA, but investing is ultimately about achieving two goals at once — financing our personal dreams and making a down payment on the world we want. Women are gaining financial independence to an unprecedented degree — they now make up the majority of college graduates, are nearly half of the labor force and are becoming the primary earners in many households. MORE
Last year, News Corp’s newspaper division reported EBITDA of $795 million on $6.7 If marketers want to produce content, they need to think like publishers. After all, content isn’t an extension of marketing, it’s an extension of publishing. I am hardly the only one to make that case , but skeptics are still vocal in their disagreement. Aren’t publishers failing?” they say. How can I hold up a struggling industry as a model? MORE
Bob's blog entries 3M Apple Booz & Company Buddy Media EBITDA Fscebook Google Harvard Business Review Intellectual Capital: The New Wealth of Organizations The Global Innovation 1000 (2011): Why Culture is Key Tom Stewart Wealth of Knowledge: Intellectual Capital and the Twenty-first Century OrganizationTom Stewart is Booz & Company’s Chief Marketing & Knowledge Officer. MORE
Look for linkages between EBITDA and your take-home pay. If you’re reading this article, you’re either curious or at the winning end of a long, competitive hiring process. Either way, congratulations! Below, I distill thoughts for people navigating executive compensation negotiations. I encourage you to read my notes on why compensation before jumping to how to negotiate. Why compensation? MORE
If even 10% of those executives leave in the first year of this transaction, we will fall far short of our EBITDA target.” HBR STAFF. “Come on, folks — act like investors. What questions do you have?” ” chided Mel, the CEO of a financial services firm, in a meeting with 50 of his fellow senior managers. MORE
In a 2010 study with Cornell University, we showed that our assessment grades predict performance, as measured not only by revenue and EBITDA but also by boss ratings (often issued by the Board). On the surface, John looked like the perfect up-and-coming executive to lead BFC’s Asia expansion plans. He went to an Ivy League B-school. His track record was flawless. Every goal or objective the organization had ever put in front of him, he’d crushed without breaking a sweat. MORE
But consider this equally inscrutable language: The value is multiples of EBITDA, assuming the back-office cost synergy targets are achievable. Ten years after the start of the Iraq War, we're all familiar with the case for hiring veterans: they're mature, responsible, have significant managerial experience, and are used to chaotic, ambiguous environments. Many possess skills that are highly transferable. So why is the gap between veteran and nonveteran unemployment rates 9.4% and 7.9% MORE
Now the largest beer company in the world, AB InBev reported a double digit EBITDA growth rate and almost 30% growth in earnings per share. But what's most interesting is their meteoric increase in profits: Between 2000 and 2010, earnings before interest, taxes, depreciation and amortization (EBITDA) at the companies that now make up AB InBev rose at a compound annual rate of 38%. Anheuser's EBITDA in 2007, prior to its acquisition, was 23%. Strategy EBITDA MORE
It sounds small, but for a company with 10% EBITDA margin, it yields a 10% profit increase. Only 33% of US CEOs are confident they’ll grow revenue in 2016. Yikes. That statistic doesn’t exactly scream optimism. It makes sense though. Profit growth always seems like a huge goal, an overwhelming responsibility. So where do you start? Improving the bottom line – margin – creates the biggest impact. I recommend starting there. But don’t wait for your next annual strategy session. MORE
Pfizer divested its consumer health care business in 2006, selling it to J&J for more than 20x EBITDA. The ability to divest strategically is as important as the ability to acquire strategically. Consider the case of the health-services giant, which had quintupled its revenues in just 10 years largely through acquisitions. The company was masterful at the buy side of M&A. MORE
Leaders are trained to identify when revenues, EBITDA, number of new customers, and retention of customers are up or down. They are less likely to receive training in how to identify values conflicts. . Values conflicts can have a tremendous impact on employee engagement, employee retention, and alignment. They can take a toll on net profits and customer satisfaction, too. . MORE
For example, a 1% price increase can result in an 11% margin improvement for a business with 9% EBITDA margins. All margin managers would like to consider themselves in the top 1% of their profession. Unfortunately, reaching that level requires an enthusiasm for emerging responsibilities within the rapidly-changing role. The position is quickly expanding. It requires much more than developing the typical cost-cutting and margin improvement strategies. MORE
They clearly generate higher growth in revenue, EBITDA, and EBITDA/EV. Companies in the top 20% of risk maturity generated three times the level of EBITDA as those in the bottom 20%. For years, companies have been pouring money into people, processes, and technology that can help them manage risk. Most have done a great job of containing their financial reporting and compliance risks. They may have streamlined or automated their internal controls. MORE
And this addresses the commercial value creation question – P&G’s mindset was to create operational efficiencies that would contribute to healthy EBITDA margins. In the 1990s, Procter & Gamble’s Product Supply Organization kicked off a major Reliability Engineering program, much like the efficiency initiatives of companies such as Toyota. MORE
EBITDA Related Topics 
First Friday Book Synopsis
NOVEMBER 3, 2011
Bob's blog entries 3M Apple Booz & Company Buddy Media EBITDA Fscebook Google Harvard Business Review Intellectual Capital: The New Wealth of Organizations The Global Innovation 1000 (2011): Why Culture is Key Tom Stewart Wealth of Knowledge: Intellectual Capital and the Twenty-first Century OrganizationTom Stewart is Booz & Company’s Chief Marketing & Knowledge Officer.
Lead Change Blog
NOVEMBER 9, 2017
Bowen is the Chairman and CEO of Maine Pointe , a firm specializing in driving EBITDA and cash improvements across the areas of procurement, operations, and logistics to enable growth. The following excerpt is from the Introduction of Total Value Optimization: Transforming Your Global Supply Chain Into a Competitive Weapon by Steven J. Bowen. . Your supply chain is the backbone of your company.
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N2Growth Blog
JANUARY 5, 2020
Look for linkages between EBITDA and your take-home pay. If you’re reading this article, you’re either curious or at the winning end of a long, competitive hiring process. Either way, congratulations! Below, I distill thoughts for people navigating executive compensation negotiations. I encourage you to read my notes on why compensation before jumping to how to negotiate. Why compensation?
Harvard Business Review
APRIL 27, 2012
Now the largest beer company in the world, AB InBev reported a double digit EBITDA growth rate and almost 30% growth in earnings per share. But what's most interesting is their meteoric increase in profits: Between 2000 and 2010, earnings before interest, taxes, depreciation and amortization (EBITDA) at the companies that now make up AB InBev rose at a compound annual rate of 38%. Anheuser's EBITDA in 2007, prior to its acquisition, was 23%. Strategy EBITDA
CO2
JUNE 7, 2011
Leaders are trained to identify when revenues, EBITDA, number of new customers, and retention of customers are up or down. They are less likely to receive training in how to identify values conflicts. . Values conflicts can have a tremendous impact on employee engagement, employee retention, and alignment. They can take a toll on net profits and customer satisfaction, too. .
HR Digest
AUGUST 1, 2019
Joe has also written toolkits for Harvard Business Press including the ROI Toolkit, Understanding EBITDA, and the Business Valuation Toolkit. Financial ignorance carries massive costs. Without an understanding of basic financial concepts, executives are not well-equipped to make decisions related to financial management. Study after study, as well as experts across the economical spectrum, agree that U.S.
Harvard Business
MARCH 31, 2017
But having a grasp of terms like EBITDA and net present value are important no matter where you sit on the org chart. The most important concepts to grasp are “how to measure profitability, EBITDA, operating income, revenue, and operating expenses,” he says. “Suddenly I needed to know things like EBITDA and how enterprise value was determined,” he says. If you’re not a numbers person, finance is daunting.
|
The Kini Group
JULY 18, 2016
For example, a 1% price increase can result in an 11% margin improvement for a business with 9% EBITDA margins. All margin managers would like to consider themselves in the top 1% of their profession. Unfortunately, reaching that level requires an enthusiasm for emerging responsibilities within the rapidly-changing role. The position is quickly expanding. It requires much more than developing the typical cost-cutting and margin improvement strategies.
The Kini Group
JULY 5, 2016
It sounds small, but for a company with 10% EBITDA margin, it yields a 10% profit increase. Only 33% of US CEOs are confident they’ll grow revenue in 2016. Yikes. That statistic doesn’t exactly scream optimism. It makes sense though. Profit growth always seems like a huge goal, an overwhelming responsibility. So where do you start? Improving the bottom line – margin – creates the biggest impact. I recommend starting there. But don’t wait for your next annual strategy session.
CO2
APRIL 18, 2012
For example if you discuss EBITDA (Earnings before interest tax and depreciation) don’t assume that all your employees will understand what you mean. What do you need to do to share your strategic plan? Creating a strategic plan is quite an undertaking for a business.
Harvard Business
APRIL 5, 2017
For example, the pervasive use of EBITDA (earnings before interest, tax, depreciation, and amortization) to reflect a company’s performance assumes that the company can operate without having to pay for these costs (I, T, and DA). As Warren Buffett warns , companies that rely on EBITDA are likely spending every dime that comes in and leaving no resources to replace existing capacity to counter competitive threats.
Harvard Business
JUNE 21, 2016
From 2008 through 2013, EBITDA (earnings before interest, taxes, depreciation and amortization) margins increased for 20 consecutive quarters, from 5% to 25%. It feels horrible: You’re scaling up aggressively and working harder than ever, but with each passing day you feel more overwhelmed. Your business is a success, but you feel like a failure.
Harvard Business Review
JUNE 29, 2012
They clearly generate higher growth in revenue, EBITDA, and EBITDA/EV. Companies in the top 20% of risk maturity generated three times the level of EBITDA as those in the bottom 20%. For years, companies have been pouring money into people, processes, and technology that can help them manage risk. Most have done a great job of containing their financial reporting and compliance risks. They may have streamlined or automated their internal controls.
|
Harvard Business Review
NOVEMBER 19, 2015
times their earnings before interest, tax, depreciation and amortization (EBITDA). By 2014, target price to EBITDA ratios had already fallen to 6.9 times EBITDA. In the early 2000s, Brazil became the darling of corporate investment. It boasted rapid economic growth, abundant natural resources, and a large (and increasingly wealthy) market of 200 million consumers.
Harvard Business
JUNE 28, 2016
million EBITDA company for 4x paying $6 million and using 50% debt financing. HBR STAFF. Compensation is, of course, more than money. It includes other aspects such as: how much you enjoy your career, whether it provides fulfillment, how much flexibility you get and how much influence you have over what you do and when you do it.
Strategy Driven
MARCH 18, 2011
times EBITDA (compared to average multiples of 15 at the time). The Essential Advantage : How to Win with a Capabilities-Driven Strategy. by Paul Leinwand and Cesare Mainardi. The conventional wisdom about strategy may be leading your company astray.
Harvard Business Review
JANUARY 28, 2013
But if you also throw in acronyms such as ABC ("activity-based costing"), EBITDA ("earnings before interest, tax, depreciation, and amortization"), and VBM ("value-based management"), only the accountants in your audience will follow you — you'll lose everyone else. It seems obvious that you shouldn't put your audience to sleep, doesn't it?
Harvard Business Review
MARCH 28, 2013
Both the primary and secondary buyers added value in the same way — increasing EBITDA through operational improvements (an average of 14% in the first round, 13% the next) and growing revenue by increasing compound annual sales (both by 10%).
Harvard Business Review
DECEMBER 11, 2012
EBITDA (earnings before interest, taxes, depreciation, and amortization) is the equivalent of corporate blood pressure. Barnes & Noble had weak blood pressure in 2009, but recently its EBITDA has shown signs of recovery, increasing more than 15% to $65 million in its most recent quarter. It's been nearly a year since Nokia CEO Stephen Elop shot off his burning platform memo as a way of shaking up the phone company's leadership.
Harvard Business Review
SEPTEMBER 26, 2011
Corporate development groups may have to accept that EBITDA multiple valuations may not be appropriate when buying a category creator. This post is part of the HBR Insight Center Growing the Top Line. Laird Hamilton is my hero. He's not only one of the world's best big-wave surfers but he also created an entirely new category within the sport called tow-in surfing.
Harvard Business Review
MAY 22, 2014
To be clear, Whole Foods’s financials are still healthy: in FY 2013, its revenue was $12.9B, EBITDA $1.2B, and earnings per share increased by 19%. Whole Foods has a bad taste in its mouth – it recently had to revise both its sales growth and earnings for the third time in six months. As a result, its stock dropped by 19% in one day. And yet investors are jittery over whether the company will be able to deliver the growth necessary to justify its still-hefty valuation.
Harvard Business Review
AUGUST 21, 2014
Last year, News Corp’s newspaper division reported EBITDA of $795 million on $6.7 If marketers want to produce content, they need to think like publishers. After all, content isn’t an extension of marketing, it’s an extension of publishing. I am hardly the only one to make that case , but skeptics are still vocal in their disagreement. Aren’t publishers failing?” they say. How can I hold up a struggling industry as a model?
Harvard Business Review
JUNE 9, 2014
But analysts are judging EBITDA, P/E ratios, quarterly growth, and cashflows – which don’t always correlate with long-term value creation. The most successful, visionary entrepreneurs dream not of millions of dollars, but of a world where their products change culture. But in technology startups, particularly venture-backed technology startups, the current investment climate does not always support that vision.
Harvard Business Review
DECEMBER 10, 2012
Pfizer divested its consumer health care business in 2006, selling it to J&J for more than 20x EBITDA. The ability to divest strategically is as important as the ability to acquire strategically. Consider the case of the health-services giant, which had quintupled its revenues in just 10 years largely through acquisitions. The company was masterful at the buy side of M&A.
Harvard Business Review
OCTOBER 20, 2014
And this addresses the commercial value creation question – P&G’s mindset was to create operational efficiencies that would contribute to healthy EBITDA margins. In the 1990s, Procter & Gamble’s Product Supply Organization kicked off a major Reliability Engineering program, much like the efficiency initiatives of companies such as Toyota.
Harvard Business Review
MARCH 28, 2013
But consider this equally inscrutable language: The value is multiples of EBITDA, assuming the back-office cost synergy targets are achievable. Ten years after the start of the Iraq War, we're all familiar with the case for hiring veterans: they're mature, responsible, have significant managerial experience, and are used to chaotic, ambiguous environments. Many possess skills that are highly transferable. So why is the gap between veteran and nonveteran unemployment rates 9.4% and 7.9%
Harvard Business Review
OCTOBER 2, 2012
and EBITDA margins are 47%. The chart below shows their financial performance over the last few years, with forecasted 2012 revenue of $767M and EBITDA of $339M. market cap is 6x revenue and 13x EBITDA, so not insane multiples on a comparable basis. Scaling is hard. Really hard.
Harvard Business Review
AUGUST 7, 2012
billion in revenue, over $1 billion in gross profit and $500 million in EBITDA. I have been thinking lately about how hard it is to scale start-ups. The Lean Start-Up movement, as exemplified in Eric Ries' book The Lean Start-Up , has appropriately focused a great deal of attention on the hard decisions and techniques required to create a company from nothing.
Harvard Business Review
FEBRUARY 6, 2015
On average, we have found that high-reputation companies have higher returns (both Return on Assets and Return on Equity), deliver higher earnings multiples , have higher market/book ratios , and have a higher Enterprise Value/EBITDA ratio – the key measures on which investors assess corporate performance. How do you measure a CEO’s impact?
Harvard Business Review
DECEMBER 15, 2015
Business results were outstanding: EBITDA more than doubled in the first year and ROIC increased almost 300%, with fewer sales people. When formulating a strategy, markets and segments are important categories to consider. But a market never buys anything. Only customers buy. To borrow a telecom industry metaphor, a deal with a customer is the “last mile” in connecting any strategy with business development efforts and marketplace results.
Harvard Business Review
MARCH 17, 2016
If even 10% of those executives leave in the first year of this transaction, we will fall far short of our EBITDA target.” HBR STAFF. “Come on, folks — act like investors. What questions do you have?” ” chided Mel, the CEO of a financial services firm, in a meeting with 50 of his fellow senior managers.
Harvard Business Review
JUNE 8, 2015
In a 2010 study with Cornell University, we showed that our assessment grades predict performance, as measured not only by revenue and EBITDA but also by boss ratings (often issued by the Board). On the surface, John looked like the perfect up-and-coming executive to lead BFC’s Asia expansion plans. He went to an Ivy League B-school. His track record was flawless. Every goal or objective the organization had ever put in front of him, he’d crushed without breaking a sweat.
Harvard Business Review
DECEMBER 17, 2012
Financial services professionals may sidetrack us by slinging around financial terms like market cap, P/E, or EV/EBITDA, but investing is ultimately about achieving two goals at once — financing our personal dreams and making a down payment on the world we want. Women are gaining financial independence to an unprecedented degree — they now make up the majority of college graduates, are nearly half of the labor force and are becoming the primary earners in many households.
Harvard Business Review
SEPTEMBER 27, 2012
Within three years, ALL's Brazilian rail operations had increased revenues by 50% and tripled EBITDA. Successful companies shape their high-level strategies by relying not on complicated frameworks but on simple rules of thumb. Managers in these organizations translate corporate objectives into a few straightforward guidelines that help employees make on-the-spot decisions and adapt to constantly shifting environments, while keeping the big picture in mind.
Harvard Business Review
FEBRUARY 24, 2011
The economics work: Trading the $25 per square foot upfront cost (plus a cost for the land and the infrastructure) for the annuitization of the "margin" gained (in many cases this is an EBITDA of about 40%) from daily consumption (which may well be $300/year and per capita), is an easily fundable proposition, especially if it can be harnessed from a 40- to 100-year tenured residency.
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