The EV/EBITDA multiple shows how many times a company's EBITDA (earnings before interest, tax, depreciation, and amortization) its enterprise value (EV) represents, and is often used to compare companies with different debt levels.
EV/EBITDA Multiple = EV (Market Cap + Interest-Bearing Debt − Cash and Equivalents) ÷ EBITDA
What it measures
While PER looks only at value to shareholders (market capitalization), the EV/EBITDA multiple is based on the value of the whole company including debt (EV). This can make it easier to compare companies with different levels of borrowing, or industries with heavier or lighter capital investment (depreciation), on a more even footing than PER. That said, this is only a general way of thinking about it — no single metric on its own guarantees a company's value.
How to read it
A low EV/EBITDA multiple alone does not mean a stock is undervalued; comparisons within the same industry or against peers are the basic approach.
Because EBITDA adds back depreciation, it can obscure the ongoing cost burden of capital investment, which is worth keeping in mind.
This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.
Frequently Asked Questions
What is EV?
EV (Enterprise Value) is market capitalization plus interest-bearing debt, minus cash and cash equivalents. It is sometimes described as a rough estimate of the amount needed to acquire the entire company, including its debt, not just its equity.
What is EBITDA?
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) adds depreciation and amortization back to operating profit. Because it is less affected by differences in depreciation accounting, interest expense, and tax regimes, it is often considered easier to compare across companies or countries.
