EV to EBITDA
Enterprise Value to EBITDA
EV to EBITDA compares the total cost of acquiring a business, debt included, with its operating earnings before interest, tax, depreciation, and amortisation.
Formula
EV/EBITDA
EV/EBITDA = Enterprise Value ÷ EBITDA
EBITDA
EBITDA = Operating Profit + Depreciation + Amortisation
Benchmark: Compare within the sector; capital-light businesses command higher multiples
Reading the number
PE compares the price of the equity with profit after interest and tax. EV/EBITDA compares the price of the whole business, debt and all, with profit before financing and accounting charges. That makes it the fairer multiple when comparing a debt-heavy company with a debt-free one, or companies with very different depreciation policies, or companies in different tax situations.
It is the standard multiple for acquisitions, for capital-intensive sectors such as cement, steel, telecom, and power, and for comparing companies across countries. A lower multiple is cheaper, but only against peers with similar growth and capital needs.
Indian example
Related ratios
Glossary terms
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