EV/EBITDA Valuation
Enterprise value multiple for business valuation
What is this tool?
EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) is the premier valuation multiple for comparing companies across different capital structures and tax jurisdictions. Unlike P/E, it accounts for debt and cash, making it ideal for M&A analysis, leveraged buyouts, and cross-border comparisons. An EV/EBITDA below the industry average suggests the company may be undervalued. Software companies typically trade at 15-25x EV/EBITDA, while industrials trade at 8-12x.
How to use
- 1
Enter market cap and balance sheet
Input market capitalization, total debt, and cash & equivalents.
- 2
Enter EBITDA
Input the company's EBITDA for the trailing or forward period.
- 3
Calculate EV/EBITDA
View the multiple, industry comparison, and implied valuation.
Frequently Asked Questions
What is EV/EBITDA and why use it?
EV/EBITDA compares a company's total value (equity + debt - cash) to its operating earnings before financing and accounting decisions. It's preferred over P/E because it eliminates the effects of capital structure (debt vs equity), tax rates, and depreciation policies. This makes it ideal for comparing companies with different leverage levels or in different countries.
Is a lower EV/EBITDA always better?
Not necessarily. A low EV/EBITDA may indicate undervaluation, or it may signal that the market expects declining EBITDA, structural problems, or industry headwinds. Always compare within the same industry โ a 5x multiple for a declining newspaper is different from a 5x multiple for a growing healthcare company. Context matters.
How does EV/EBITDA differ from P/E?
P/E uses net income (after interest, taxes, and depreciation) and only equity value. EV/EBITDA uses operating earnings and enterprise value (including debt). P/E can be negative for loss-making companies; EV/EBITDA is often positive even when net income is negative. P/E is better for consumer-facing companies; EV/EBITDA is better for capital-intensive businesses and M&A.