Glossary
EV/EBITDA
Enterprise value divided by EBITDA, a valuation multiple that compares companies regardless of how they are financed.
On this page
EV/EBITDA, often called the enterprise multiple, divides a company's enterprise value by its earnings before interest, taxes, depreciation and amortization. It answers a buyer's question: how many years of operating cash earnings would it take to pay for the whole business, debt included? Because both sides of the ratio ignore capital structure, it lets analysts compare a debt-heavy company with a debt-free one more fairly than the P/E ratio can.
How it works
EBITDA is usually taken over the trailing twelve months, or as a forecast for a forward multiple.
Limits
- EBITDA is not cash. It skips capital expenditure, working-capital needs and taxes, so capital-intensive businesses (telecom, airlines, utilities) look cheaper than their free cash flow justifies.
- Industry norms differ. Multiples are only meaningful against peers and history; a "normal" level for software is very different from one for steel.
- Adjusted figures. Companies report adjusted EBITDA that removes stock-based compensation and other costs. That is a non-GAAP number; compare like with like.
- Banks and insurers are rarely valued this way, since interest is their core business.