EV / EBITDA
Enterprise value divided by EBITDA — a capital-structure-neutral valuation multiple. Compares the total value of the firm (equity + debt − cash) against its operating-cash-flow proxy.
When to use: Use to compare companies across different capital structures or for M&A-style "what is the whole business worth?" analysis. Standard multiple in private-market transactions and credit analysis.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| EVtoEBITDA | EV/EBITDA | Enterprise value to EBITDA multiple | integer |
| MarketCap | Market Cap | Equity market capitalization | $ |
| Debt | Total Debt | Interest-bearing debt | $ |
| Cash | Cash & Equivalents | Cash and short-term investments | $ |
| EBITDA | EBITDA | Earnings before interest, taxes, depreciation, amortization | $ |
Real-Life Examples
Example 1: Mid-Cap Industrial
Market cap $5B, debt $2B, cash $0.5B, EBITDA $750M.
Given
Step-by-Step
EV/EBITDA of ~8.7× — typical for a mid-cycle industrial. Defensives often trade at 10-12×, cyclicals at 6-8×, technology at 15-25×. Compare against industry medians and historical ranges to gauge relative valuation.
Frequently Asked Questions
Because P/E is distorted by capital structure (high debt → low equity → high earnings yield even at the same enterprise yield) and tax differences. EV/EBITDA uses pre-financing, pre-tax cash earnings against the whole enterprise — apples-to-apples.
Because cash on the balance sheet is a financial asset, not part of the operating business. The "true" enterprise value is what you would pay to buy the operations — net of any cash you could distribute back immediately after closing.
For asset-heavy businesses where depreciation is a real economic cost (EBITDA overstates true cash flow), or for highly indebted firms where servicing the debt consumes most EBITDA. EV/EBIT or EV/FCF address those issues at the cost of more sensitivity to accounting choices.