EV/EBITDA

Valuation & Fundamentals

Enterprise value divided by annual EBITDA.

Unlike the P/E, it takes a company's debt into account, so it lets you compare indebted and debt-free companies on the same scale. A lower multiple suggests the business is priced more cheaply relative to its operating profit, but typical levels differ widely from sector to sector.

Example

A company with a $100 billion market cap, $30 billion of debt and $10 billion of cash has an enterprise value of $120 billion. With annual EBITDA of $12 billion, its EV/EBITDA is 10.

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