What method uses EBITDA as a basis to determine valuation?

The method that uses EBITDA as a basis to determine valuation is the EBITDA Multiple. This approach involves taking a company's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and applying a multiple derived from comparable companies or historical market data to estimate the company's overall value.

Using EBITDA as a valuation metric is advantageous because it provides a clearer picture of operational performance by focusing on earnings before the effects of financing and accounting decisions. The EBITDA multiple is particularly useful in assessing the value of companies within the same industry, as it helps investors and analysts gauge relative value efficiently. This method simplifies complex financial data into a single, usable figure that reflects the core profitability of the business, making it a preferred choice for valuation in many cases.

The other options relate to different aspects of financial management and forecasting. For instance, Burn Rate refers to the rate at which a company spends its capital, usually in a startup context, indicating how quickly a company is using its available cash. Pro Forma pertains to financial statements that project future earnings, based on certain assumptions. Runway is the amount of time until a company runs out of cash at its current burn rate. While these terms are relevant in financial performance analysis, they do not specifically involve the