EV/EBITDA — Enterprise Value to EBITDA
DeepScreen explains EV/EBITDA as follows: EV/EBITDA compares enterprise value with EBITDA, an operating-profit measure before interest, tax, depreciation and amortisation. The multiple is conventionally interpreted only when EBITDA and enterprise value produce a positive ratio.
Formula
Enterprise value ÷ EBITDA
Illustrative example
Enterprise value of 900 million divided by positive annual EBITDA of 100 million gives EV/EBITDA of 9x. Negative EBITDA does not produce an interpretable cheapness multiple.
Educational example; these are not reported company figures.
How to interpret it
- Use it to compare similar operating businesses with the same reporting period and consistent definitions.
- Lower positive multiples can indicate lower enterprise value relative to EBITDA, but the multiple must be read with growth, margins, leverage and reinvestment needs.
Limitations
- A negative or zero EV/EBITDA is not a cheap valuation signal; it is normally not meaningful because EBITDA is non-positive or enterprise value is negative.
- EBITDA is not free cash flow, and capital-intensive companies may need large recurring investment.
Frequently asked questions
- What is EV/EBITDA?
- EV/EBITDA compares enterprise value with EBITDA, an operating-profit measure before interest, tax, depreciation and amortisation. The multiple is conventionally interpreted only when EBITDA and enterprise value produce a positive ratio.
- How is EV/EBITDA calculated?
- Enterprise value ÷ EBITDA
- What should investors watch for with EV/EBITDA?
- A negative or zero EV/EBITDA is not a cheap valuation signal; it is normally not meaningful because EBITDA is non-positive or enterprise value is negative. EBITDA is not free cash flow, and capital-intensive companies may need large recurring investment.
. Educational analytical content, not investment advice.