Sometimes, we see companies being taken over and, many times, at a huge premium. Have you wondered how takeover targets are determined? Well, quantitatively, one way to determine if a company has the potential to be a takeover target is to look at its Enterprise Multiple. This is a financial ratio that is arrived at by dividing Enterprise Value by EBITDA (earnings before interest, taxes, depreciation and amortisation). So, to understand Enterprise Multiple, we have to understand Enterprise Value and EBITDA. Enterprise Value is the company's market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. This is a more accurate takeover valuation than just looking at the company's market capitalisation. EBITDA is used to evaluate profitability of a company. EBIT looks at operating profits and EBITDA looks at earnings before any accounting or financing adjustments come into the picture. Put Enterprise Value over EBITDA and we get ......