DCF Calculator: Exit Multiple
The same DCF, closed the way bankers often close it: ten years of cash, then the business sold at a multiple of its EBITDA, set beside growth forever.
An example company: free cash flow $10.0B, EBITDA $15.0B (free cash flow is 67% of it), cash $20.0B, debt $10.0B, 1.0B diluted shares. Price $150.00.
The example company opens at 8% a year for five years, half that for the next five. Bear and bull sit 5 points either side.
Bear · Base · Bull
| Case | Growth | Rate | Exit | Value |
|---|---|---|---|---|
| Bear | 3% → 1.5% | 11% | 8× | $129.4714% below |
| Base | 8% → 4% | 10% | 10× | $199.3933% above |
| Bull | 13% → 6.5% | 9% | 13× | $329.58120% above |
A sale, or growth forever?
| After year 10 | 5 years | 10 years |
|---|---|---|
| Sold at 10× EBITDA | $194.1929% above | $199.3933% above |
| Grows foreverat 2.5% | $182.0221% above | $190.2027% above |
The multiple is what buyers pay today; growth forever is what the cash itself supports. The gap between the rows is how much of the value rests on today's market.
The cash, year by year
What moves it most
| Rate | −2% | 3% | 8% | 13% | 18% |
|---|---|---|---|---|---|
| 8.0% | 152 | 187 | 229 | 279 | 339 |
| 9.0% | 142 | 174 | 213 | 260 | 315 |
| 10.0% | 133 | 163 | 199 | 242 | 293 |
| 11.0% | 125 | 153 | 187 | 226 | 273 |
| 12.0% | 118 | 144 | 175 | 212 | 255 |
Green: at or above the share price. Shaded: your answer.
Other ways to value it from the cash
How the calculation works
1 · Project the cash
Free cash flow is operating cash flow minus capital spending: the cash a business could hand its owners after keeping itself going. It grows at your first rate for five years, then at your second for five more.
2 · Discount it
A dollar in year n is worth 1 ÷ (1 + r)ⁿ today, r being the return you require. At 10%, a dollar five years out is worth 62 cents now, and one ten years out 39 cents.
3 · Sell it in year ten
EBITDA is earnings before interest, tax, depreciation and amortisation. Year ten's EBITDA is read from the cash flow at today's ratio of the two, then multiplied by the EV/EBITDA a buyer would pay. That sale price is discounted back like any other year.
4 · From the business to a share
The discounted cash flows plus the discounted value after year ten are the enterprise value. Add cash, subtract debt and you have the equity; divide by the diluted shares for a value per share.
A multiple is borrowed from today's market, so this version lands closer to the price and moves with the market's mood. The growth-forever version asks only what the cash itself supports.
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Questions
What is an exit multiple?
A price for the whole business stated as a multiple of one of its numbers, here EBITDA. An exit multiple of 15 means a buyer pays fifteen times a year's EBITDA for the company, debt included.
What is EBITDA, and why use it here?
Earnings before interest, tax, depreciation and amortisation: a rough measure of the cash a business makes from operating, before how it is financed. Buyers and bankers quote prices against it, which is why the exit method uses it.
How does the calculator get EBITDA in year ten?
It assumes free cash flow stays the same share of EBITDA as in the latest year, so year ten's EBITDA is year ten's free cash flow divided by that ratio. Change the EBITDA in the numbers and the ratio changes with it.
Why does the exit version usually give a higher value?
The multiple comes from today's market, and when stocks are priced high the multiple is high too. Growth forever asks only what the cash supports, so the gap between the two shows how much of a value rests on today's prices.
What multiple should I use?
One a buyer might pay in ten years, when the company has grown up. Mature companies often trade between about 8 and 15 times EBITDA; the calculator opens at today's multiple, held between 6 and 25.
For education only. The value is what the inputs on this page imply; it is not a forecast, a price target or investment advice.