HOMEPAGE

EV/EBITDA

Definition

EV/EBITDA compares a company’s total value (enterprise value) to its cash‑based operating profit (EBITDA). It is one of the most widely used valuation multiples.

$$\text{EV/EBITDA}=\frac{\text{Enterprise Value}}{\text{EBITDA}}$$

Enterprise Value (EV) includes market cap, debt, and cash.

Why It Matters

• Neutral to capital structure — great for comparing companies with different debt levels.
• Uses EBITDA, which removes non‑cash expenses and accounting differences.
• Common in private equity, M&A, and valuation comps.
• Useful for capital‑intensive industries.

How to Interpret It

• Lower EV/EBITDA:
  • Potential undervaluation
  • Higher cash‑flow yield
• Higher EV/EBITDA:
  • Potential overvaluation
  • Market expects strong growth

Typical ranges vary by industry: utilities and telecom often trade lower; software and healthcare trade higher.

Example

A company has:

• Enterprise Value: $12 billion
• EBITDA: $1.5 billion

$$\text{EV/EBITDA}=\frac{12}{1.5}=8$$

An EV/EBITDA of 8× suggests the company is valued at eight times its annual cash‑based operating profit.