Value Microcaps Motherboard

[abh3vt]

Swick, I agree with you about the importance of using EV/EBITDA multiples when looking at relative valuations, but I think you have one part backward:

So one would subtract debt from enterprise value, because it is the debtholder’s claim on the business. You would add cash on the company’s balance sheet, because it is a non-operating asset and is not generating earnings that are included in EBITDA.

Its actually the opposite. EV = market cap + debt - cash.

http://www.investopedia.com/terms/e/enterprisevalue.asp

EV/EBITDA values are sometimes better than straight PE because of non-cash expenses that can hurt GAAP earnings results of companies that use stock options, acquire intangible assets, or require lots of plant and equipment and must depreciate those assets.