EV/EBITDA
ValuationDefinition
Enterprise value divided by EBITDA. A valuation shortcut that answers: how many years of the company's operating cash would it take to pay off the full purchase price? Lower multiples are cheaper.
EV/EBITDA is often preferred over P/E when comparing companies with different amounts of debt, different tax rates, or different depreciation policies, because both the numerator (EV) and denominator (EBITDA) strip those differences out.
EV/EBITDA is often preferred over P/E when comparing companies with different amounts of debt, different tax rates, or different depreciation policies, because both the numerator (EV) and denominator (EBITDA) strip those differences out.
Formula
EV/EBITDA = Enterprise value divided by EBITDA
Example
Company A has EV of $500M and EBITDA of $50M, for an EV/EBITDA of 10x. Industry average is 12x. Company A looks cheap versus peers, though you should always look at why.