also SBC (share based comp) looks favorably on cash flow statement, because SBC does not decrease EBITDA, thus artificially inflating EBITDA numbers and price target of the company.
How this works: new SaaS startup shows up and shows $10M EBITDA to investors. This does not reflect $5M in SBC.
According to industry averages, bankers apply average (lets say 10x) EBITDA multiple and derive valuation of $100M and invest funds based on that calculation.
Had company paid cash salary instead of RSUs, firms' EBITDA would have been $5M and valuation of $50M - a half of original pitched value
Obviously this is just a naiive textbook example, and actual valuations are more complex and involve several ways of deriving value and multiples, but in general RSU is viewed favorably mainly because it improves Cash Flow from Operations and EBITDA numbers - in addition to creating incentives to employees
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also SBC (share based comp) looks favorably on cash flow statement, because SBC does not decrease EBITDA, thus artificially inflating EBITDA numbers and price target of the company.
How this works: new SaaS startup shows up and shows $10M EBITDA to investors. This does not reflect $5M in SBC.
According to industry averages, bankers apply average (lets say 10x) EBITDA multiple and derive valuation of $100M and invest funds based on that calculation.
Had company paid cash salary instead of RSUs, firms' EBITDA would have been $5M and valuation of $50M - a half of original pitched value
Obviously this is just a naiive textbook example, and actual valuations are more complex and involve several ways of deriving value and multiples, but in general RSU is viewed favorably mainly because it improves Cash Flow from Operations and EBITDA numbers - in addition to creating incentives to employees