Definition:

The 10-year EBITDA Growth Rate measures the compound annual growth rate (CAGR) of a company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) over a ten-year period. It provides insight into the company's long-term profitability and operational efficiency trends.

Formula:

EBITDA Growth Rate = [(EBITDA in Year 10 / EBITDA in Year 1) ^ (1/10)] - 1

How to use the metric:

Investors and analysts use the 10-year EBITDA Growth Rate to assess a company's long-term financial health and growth potential. A consistent growth rate can indicate strong management and a competitive business model. It is often used in valuation models and to compare companies within the same industry.

Limitations:

The metric assumes that past growth rates will continue into the future, which may not always be the case. It can be skewed by one-time events or accounting changes. Additionally, it does not account for external factors such as market conditions or economic downturns.

Applies to:

This metric is particularly useful in industries with stable and predictable cash flows, such as consumer goods, utilities, and healthcare, where long-term growth trends are more indicative of future performance.

Doesn't apply to:

Industries with high volatility or rapid technological changes, such as technology or startups, may not find this metric as useful. These sectors often experience erratic growth patterns, making long-term historical growth less predictive of future performance.

Summary:

The 10-year EBITDA Growth Rate is a valuable tool for evaluating a company's long-term growth in profitability and operational efficiency. While it provides insights into historical performance, users should be cautious of its limitations and consider industry-specific factors when interpreting the results.