Valuing asset heavy company (trucking example)

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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?

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Reply by a searcher
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.
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Reply by a searcher
from University of California, Santa Barbara in Los Angeles, CA, USA
Generally you should at these assets based on free cash flow which is what ebitda attempts to approximate. However, the depreciation here is really cost of goods sold, so you need to adjust the formula to ebitda less annual capex to upkeep the fleet. Generally, I would be very careful of taking the book value of the assets too seriously but the current lack of available vehicles may mean their actual market value is high.
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