Blending EBITDA with NPV of Cash Flows?

November 19, 2025

by a searcher from University of Pennsylvania - The Wharton School in Pittsburgh, PA, USA

Need some help with a valuation question. Company has a handful of fully committed, multi-year contracts (5-6yrs on avg) and then a bunch of 1-yr contracts that generally renew each year. 1) Is it reasonable to do a blended valuation of a) multiple of EBITDA for the one-year contracts but then b) discounted cash flow on the committed contracts? 2) Assuming that's reasonable, when I take the NPV of the long-term contracts, I get a smaller amount than if I just take the avg EBITDA per year over the life of the contracts (actual EBITDA grows each year of the contract) and then multiple that by the valuation multiple (e.g. 5x). Is the avg EBITDA x multiple valuation analysis valid, or would it get push-back b/c it takes out the time value of money, or for some other reason? Thanks in advance for your help.

Reply by an investor
from Wesleyan University in Dedham, MA, USA

To me the multiple of RR or current period EBITDA is the best way to capture everything rather than doing a bunch of fragmented math. For sure build projections to show where you think revenue and EBITDA is going to go. And think carefully what you think the business might be worth in the future. But in any business the multiple is a proxy for two things: Growth and Certainty of Growth. The factors in terms of recurring revenue, contract length, stickiness of the business, churn, growth prospects, etc, are encapsulated in where value is and what is a fair multiple for the business. Sometimes buying a business at 5x current EBITDA is a great deal and sometimes buying it at 10x is a great deal. If you are buying a slow growth business 5x might be right but if you are pretty sure the EBITDA will double in 3 years with contracts in place then 10x might actually be a steal. Sure do a DCF if you want. But in the end as an investor and board member I want to know why the value we are paying today is going to be 3 or 5 MOIC five years out with a high degree of conviction.

Reply by a searcher
from Warwick Business School in Wappingers Falls, NY 12590, USA

Yes, a blended approach is correct, multiplying average EBITDA by a multiple for long-term contracts will draw pushback because it ignores time value, renewal risk, and contract attrition.

+10 more replies.

Join the discussion