EV/EBITDA
Enterprise value divided by earnings before interest, taxes, depreciation and amortization, a valuation multiple that includes debt.
EV/EBITDA divides enterprise value by EBITDA. Enterprise value is market capitalization plus debt, preferred equity and minority interest, minus cash. EBITDA is earnings before interest, taxes, depreciation and amortization. Because enterprise value includes debt, the multiple can compare companies with different leverage and tax positions.
On our site, EV/EBITDA is shown on a trailing or forward basis, with the components listed. Definitions of EBITDA vary, and some adjust for stock-based compensation.
Traders care because the multiple is widely used in acquisitions and in sectors with heavy depreciation, such as telecom and industrials. It ignores capital spending, so pair it with free cash flow.
Worked example (illustrative numbers, not real data): market cap is 8 billion dollars, debt is 3 billion and cash is 1 billion. Enterprise value is 10 billion. With EBITDA of 1 billion, EV/EBITDA is 10 times.