We typically think of growth as the main driver of business value. But does a higher EBITDA margin actually lead to a higher multiple? Travis W. Harms analyzed industrial companies from the S&P 1500 to uncover the answer.
Based on Harms’ findings, businesses with stronger EBITDA margins consistently receive higher valuation multiples. For family business directors looking to increase their company’s value, this means you want both strong profits and growth. But rapid revenue expansion—a common strategy to increase value—often requires major investments. This raises the stakes for performance.
An easier and more cost-effective way to increase value is through higher profit margins. While some investment may be needed, it’s usually much less than what’s required for aggressive growth.
There are four places to look to improve profit margins. Read about them in “The Most Efficient Way to Increase the Value of Your Family Business.”
Read about increasing the value of your family business here.
Become a Member for Your Expertly Curated Advice
Joining the Family Wealth Library means access to the information the legacy builders need to navigate family dynamics and protect our wealth. We can keep what is ours by managing familial challenges and building trust and transparency.