Valuing asset heavy company (trucking example)

January 07, 2022
by a searcher from University of Colorado at Boulder in Los Angeles, CA, USA
Trucking company example:
$5mm in assets (trucks/trailers)
$750k EBITDA
Let’s say the industry trades 5x EV/EBITDA, which in this case would be $3.75mm valuation. No owner would sell below ‘break-up’ value of assets obviously.
I feel like the business should trade at asset value plus some goodwill (customers, drivers, office staff).
Do you guys agree here? Any formula to apply?
from Northwestern University in Miami, FL, USA
From a practical standpoint, you either have the assets, or have the cashflow that the assets generate.
If asset value is higher than the cashflow valuation, it means that the operation doesn’t generate enough cashflow to compensate it’s cost of capital and you’re better off liquidating the company, selling the assets and taking the cash somewhere else.
from University of California, Santa Barbara in Los Angeles, CA, USA