EV/EBITDA

EV/EBITDA is a valuation multiple that compares a company's Enterprise Value to its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). It's widely used in corporate finance and M&A.

Formula: EV/EBITDA = Enterprise Value / EBITDA

Where:

• EV = Market Cap + Debt - Cash
• EBITDA = Operating Income + Depreciation + Amortization

Why EV/EBITDA Is Useful:

1. Capital structure neutral: Works regardless of debt levels
2. Depreciation neutral: Useful for asset-heavy companies
3. Comparable: Standard metric for M&A valuations
4. Cash flow proxy: Approximates operating cash generation

Example Comparison:

Company	EV	EBITDA	EV/EBITDA
Company A	$50B	$5B	10x
Company B	$30B	$3B	10x
Company C	$20B	$4B	5x

Typical EV/EBITDA by Industry:

Industry	Typical Multiple
Technology	15-25x
Consumer Staples	10-14x
Industrials	8-12x
Utilities	6-10x
Energy	4-8x

Limitations:

• EBITDA ≠ free cash flow
• Ignores capital expenditure needs
• Can be misleading for high CapEx businesses
• Non-GAAP metric (can be manipulated)

EV/EBITDA vs P/E:

EV/EBITDA	P/E Ratio
Enterprise level	Equity level
Capital structure neutral	Affected by debt
Better for M&A	Better for stock analysis

Rule of Thumb: Lower EV/EBITDA suggests potentially cheaper valuation, but always compare within same industry.