EBITDA Multiples for Trucking Companies | Best Calculations
An EBITDA multiple for trucking companies is a tool to calculate the enterprise-level return on investment your business is performing.
Placing this calculation against the industry standard for your area of logistics could show you how you’re performing compared to others in your sector and give you some idea of how much you need to improve.
In short, the EBITDA multiples for trucking companies can show you how to value your business. If you know your value, you know what you could sell your company for.
In this article, we have located the best EBITDA calculations for your transportation and logistics company to serve you and your business.
Valuing A Haulage Trucking Company
When it comes to valuing a logistics business, there are two different valuation multiples.
The two types of valuation multiples are Equity Multiples and Enterprise Value Multiples. For this article, we’ll be focusing on Enterprise Value Multiples.
Equity Multiples can only give you a snapshot of the current value of the company, as well as give you an idea of a potential future. On the other hand, Enterprise Value Multiples give a more accurate representation of a company’s value. Enterprise Value Multiples are more used by a logistic company interested in selling, going through a merger, or an acquisition. This is achieved by the effect of debt financing being left out of the final calculation.
Some common Enterprise Value Multiples include EV/Revenue, EV/EBITDAR, EV/EBITDA, and EV/Invested Capital. There are many other methods of calculating the value of a trucking or transportation business. These four are simply the most common ones used. This article will focus on EV/EBITDA.
EBITDA is a helpful calculation, and it’s relatively simple to use. It uses publicly available information and is a standard tool in the financial world. It works best with stable businesses that are not making large expenditures.
You will be able to apply your EBITDA to the three common approaches for valuing a company: The income approach, Market approach, and Asset approach. You can calculate all three and compare the results.
EBITDA is particularly good for comparing the values of several companies. This process is called Comparable Company Analysis and is part of the Market approach. It gathers information from other comparable companies (i.e., companies in the same sector), such as their EBITDA, and compares it to your business.
Armed with market multiples of the transportation industry in the trucking and hauling sector, will bring more clarity to a reasonable price ending with the success you’re aiming for.
Calculate EBITDA Multiples For a Trucking Company
There are ten steps to calculating the EBITDA multiples for trucking companies.
- The first step is to choose the industry. In this case, we will be focusing on transportation.
- Find between five and ten similar companies that you could compare to each other.
- Research the chosen companies to ensure that they are indeed similar enough to compare. Keep an eye out for differences such as the geographic region, the goods they transport, or the means of a truck hauling service.
- Gather the financial data for each company. You’ll need three years’ worth for the calculations. The information required will include the revenue, EBITDA, gross profit, and EPS)
- Gather the market data for each company. This would consist of the share price, debt, and outstanding shares.
- Use the EV formula to calculate the EV for each company. The formula is the market capitalization plus the net debt.
- For each financial year you gathered in step 4, divide the EV by the EBITDA for those years.
- With the EBITDA multiples at hand, you can now use them to compare the companies you picked.
- If any EBITDA values are either premiums or discounted, find out why.
- Finally, look at the company that you are trying to value and its EBITDA value. Compare that to the EBITDA values of the other companies that you previously calculated.
Valuation Services in the Transportation Industry
There are five main reasons for a trucking company to use EBITDA.
The first reason is to calculate the current trading value of a company. This number will be given as a multiple, such as 16x or 4x. As logistics deals in global trade, logistics or trucking companies need to know where they stand in a worldwide market.
The second reason is to compare your company against several other companies in the same sector. As we saw in the last section, this typically only works when the other companies are relatively similar in a geographic region, methods, and product. The EBITDA multiple becomes less significant the further away companies become. For example, comparing four trucking companies in North America that all transport crude oil would be better than four trucking companies in two different countries that transport three other products.
The third reason is to calculate a terminal value, as is used in a Discounted Cash Flow model. This model estimates the value of a company based on its potential future cash flow. There are few large capital expenditures for something like a logistics or trucking company making a hit to the cash flow.
Fourth, EBITDA can be used when selling a trucking business. During an acquisition, the buyer of a logistics company may offer something like 3x EBITDA.
Finally, when putting together an equity research report, EBITDA can calculate a target selling price. This is great for either just filing annual reports or setting up a reasonable multiple-selling offer for potential buyers.
EV/EBITDA Calculation Formula
The EBITDA stands for “Earnings before Interest, Taxes, Depreciation, and Amortization.” The formula for EBITDA lies in the acronym.
To perform this calculation, first, you need the transportation company’s net income.
Second, subtract all business expenses except for interest, taxes, depreciation, and amortization as mentioned in the acronym.
To reach the EV/EBITDA multiple as mentioned above, you need to take this figure and divide it by the Enterprise Value (EV). This will give you a multiple (12x, 23x, etc.).
Importance of EBITDA Multiples in the Trucking Sector
When selling transportation, logistics, or trucking business, in California you need the correct data at hand to make an informed decision on your company’s value. Due to the lower capital acquisitions, the EBITDA multiples for trucking companies remain the superior model for the transportation and trucking sector. It is a widely used and trusted method to allow you to make the best decisions for your business.
As a business owner, you don’t need to struggle through evaluating a transportation company yourself. A trained and qualified business broker in California would be happy to answer all of your questions and find ways to increase your value.
Contact Rogerson Business Services to help you with more information today!
This is Part oTipse Tips to sell a trucking company in California series -> If you haven’t read the whole series, you can start here with the first post. https://www.rogersonbusinessservices.com/how-to-sell-a-trucking-company/