Investing term
What is EV/EBITDA?
Enterprise value ÷ EBITDA. A 'capital-structure-neutral' multiple for comparing businesses across leverage levels.
EV/EBITDA divides enterprise value by EBITDA to value a business in a way that largely ignores its debt load and tax situation. Because enterprise value accounts for debt and cash, and EBITDA strips out interest and tax, the multiple neutralises financing and tax differences — letting you compare companies across different capital structures.
That's why it's a favourite for comparing businesses across industries and for takeover analysis, where the buyer will refinance the target anyway. But it inherits EBITDA's flaws: by ignoring depreciation, it flatters capital-intensive companies that must keep spending to replace worn assets, and by ignoring interest and tax it overstates the cash owners actually receive. So a low EV/EBITDA isn't automatically cheap, especially for a capital-heavy business — the multiple is most useful as a comparison tool within similar business types, alongside metrics that don't ignore real costs.
EV/EBITDA divides enterprise value by EBITDA, neutralising debt and tax so companies compare across leverage. But it inherits EBITDA's flaw of ignoring worn assets, so a low reading isn't always cheap.
For example
A company with a $1.2B enterprise value and $120M of EBITDA trades at 10× EV/EBITDA — a multiple you can compare to peers regardless of how much debt each carries.
Learn it by doing
That's EV/EBITDA in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 15, Valuation for Investors).
Try the free lesson →Why it matters to you
EV/EBITDA matters because it's one of the most-used valuation multiples, especially for comparing companies with different debt levels or in deal-making. Its strength is neutrality to financing and tax; its weakness is that it ignores the very real costs of depreciation, interest, and tax. Knowing both sides — using it to compare similar businesses while remembering it flatters capital-intensive and indebted ones — is what makes it a useful tool rather than a misleading one.
⚠ Treating a low EV/EBITDA as automatically cheap
Because EV/EBITDA ignores depreciation, interest, and tax, a capital-intensive business that must pour cash into replacing assets can look cheap on the multiple while generating little actual free cash. A low EV/EBITDA isn't a bargain if the excluded costs are large. Compare it within similar business types and cross-check with free cash flow before concluding a stock is cheap.