Depreciation Add Backs on a Rental Business

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by a searcher from New York University - Leonard N. Stern School of Business
in New York, NY, USA

4mos ago

Depreciation Add Backs on a Rental Business

I’m currently evaluating a rental business that depreciates its rental assets over a very short period (less than two years). As a result, EBITDA looks strong, but ongoing maintenance CapEx is relatively high. In a rental-heavy business like this, is EBITDA the appropriate metric to estimate cash flow or would a more accurate proxy for cash flow be EBITDA minus maintenance CapEx? I’d really appreciate your thoughts.

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reply by an member 3mos ago
from University of Johannesburg in Johannesburg, South Africa

Hi Bradley, I'd suggest going the cash flow statement route where you see cash in vs cash out to get a clearer overall picture of how Capex is impacting the cash flow of the business.

reply by a searcher 2mos ago
from Durham University in London, UK

Definitely appropriate to use an FCF multiple for comparable analysis ... that said most vendors / brokers work from EBITDA which for pricing purposes is more likely to drive vendor expectations. So value on FCF, price on EBITDA