Which multiple is specifically noted as useful for capex-intensive companies?

Which multiple is specifically noted as useful for capex-intensive companies?

• A. EV/Revs
• B. EV/EBITDA
• C. EV/(EBITDA - Capex)
• D. EV/FCF

Answer: (C)

When a business must reinvest heavily in its assets, cash flow after this sustaining capital becomes much more relevant than earnings or revenue alone. EBITDA ignores capex entirely, so using it can overstate the cash available to all capital providers in capital‑intensive industries. Subtracting sustaining capex from EBITDA creates a rough, cash‑flow proxy that reflects how much cash is left after maintaining the asset base. Multiplying enterprise value by this adjusted cash flow, i.e., EV divided by (EBITDA minus Capex), gives a multiple that better tracks value relative to cash flow after reinvestment. It helps compare firms with varying capital needs by incorporating the ongoing cost to maintain growth and operations. For example, if EBITDA is 100 and sustaining capex is 40, EBITDA minus Capex is 60. A given EV would yield a higher multiple under EV/(EBITDA − Capex) than under EV/EBITDA, signaling the tighter cash‑flow situation after capex in a capital‑intensive business. Other multiples either ignore capex (like EV/EBITDA) or depend on more complete free cash flow measures that include taxes and working capital changes, which can add noise for cross‑company comparisons with different capex profiles. EV/(EBITDA − Capex) directly targets cash flow after sustaining investment, making it particularly useful for capex‑intensive companies.

When a business must reinvest heavily in its assets, cash flow after this sustaining capital becomes much more relevant than earnings or revenue alone. EBITDA ignores capex entirely, so using it can overstate the cash available to all capital providers in capital‑intensive industries. Subtracting sustaining capex from EBITDA creates a rough, cash‑flow proxy that reflects how much cash is left after maintaining the asset base.

Multiplying enterprise value by this adjusted cash flow, i.e., EV divided by (EBITDA minus Capex), gives a multiple that better tracks value relative to cash flow after reinvestment. It helps compare firms with varying capital needs by incorporating the ongoing cost to maintain growth and operations.

For example, if EBITDA is 100 and sustaining capex is 40, EBITDA minus Capex is 60. A given EV would yield a higher multiple under EV/(EBITDA − Capex) than under EV/EBITDA, signaling the tighter cash‑flow situation after capex in a capital‑intensive business.

Other multiples either ignore capex (like EV/EBITDA) or depend on more complete free cash flow measures that include taxes and working capital changes, which can add noise for cross‑company comparisons with different capex profiles. EV/(EBITDA − Capex) directly targets cash flow after sustaining investment, making it particularly useful for capex‑intensive companies.