Valuing asset heavy company (trucking example)

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by a searcher from University of Colorado at Boulder
in Los Angeles, CA, USA

4yrs ago

Valuing asset heavy company (trucking example)

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?

1 Like

429 Views

reply by a searcher 1yr ago
from Northwestern University in Miami, FL, USA

Conceptually you either value the company as a going concern -cashflow- or at liquidation value -net assets-. There’s no mixing a few elements from here or there.

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.

reply by a searcher 1yr ago
from Cornell University in Boston, MA, USA

Asset-heavy trucking firms need to analyzed based on EBIT not EBITDA. The equipment needs to replaced on a defined schedule via capex or the maintenance per mile expense will kill the profits. Thanks.