medium · Investment Banking
An analyst is comparing two companies in the same industry. Company A expenses all of its R&D, while Company B capitalizes a portion of its software development costs.
How will this affect their relative EV/EBITDA multiples?
- Company A will appear more expensive because expensing R&D reduces Net Income.
- There will be no impact on EBITDA because R&D is a non-operating expense.
- Company B will have higher cash flow because capitalization is a non-cash adjustment.
- Company B will appear to have higher EBITDA and a lower EV/EBITDA multiple, all else being equal.
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