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Investigation of the Relationship between Disclosure of “EBITDA” and “Net Income” Indicator

Student: Ivshin Aleksandr

Supervisor: Yulia Leevik

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Management (Bachelor)

Final Grade: 8

Year of Graduation: 2019

This bachelor thesis investigates the role of financial indicators EBITDA and Net Income as a companies’ performance measures and examines the use or them for the prediction of companies’ share prices. Although EBITDA is not established by IFRS or Russian GAAP as mandatory indicator to disclosure, EBITDA is widely used by analysts, investors and other stakeholders to assess the financial position and value of companies. Even though EBITDA is perceived as a measure that provides precise information about operations and does not consider the companies’ assets financing, the Net Income indicator listed on an income statement already reveal all the necessary information without the need of adjustments (EBITDA). The bachelor thesis is aimed at evaluating EBITDA and Net Income indicator ability to predict share price for the telecommunication industry in Russian federation. The sample for the research consists of 5 public companies presented on the given market segment, which consist 80% of the industry’s capitalization. The research is done on the market-based method of multiples reflecting EBITDA and Net Income – EV/EBITDA and P/E. Each of the multiples were predicted for the four quartiles of 2018 by using regression analysis (Time Series Model). Then the companies’ predicted share prices were extracted from the predicted multiples. As a result of the study, it was found that EBITDA predicts a share price better than Net Income indicator for the telecommunication industry in Russia.

Full text (added May 27, 2019)

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