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EV/EBITDA Calculator

Value a company with the EV/EBITDA multiple.

How it is calculated

The multiple is EV / EBITDA. Enterprise value is the market capitalisation plus debt minus cash, which is the price of the whole business independent of how it is financed. EBITDA is earnings before interest, taxes, depreciation and amortisation. Both numbers should be in the same currency and unit, for example millions. The result is shown with a × sign and means that many years of EBITDA are needed to pay for the enterprise. EBITDA must be greater than zero; with zero or negative EBITDA there is no result, because the multiple would not be meaningful. What counts as a high or low multiple depends on sector, growth and interest rates.

Worked example

A company has an enterprise value of 500 million and EBITDA of 62.5 million. EV/EBITDA = 500 / 62.5 = 8.00×. It would take about eight years of current EBITDA to cover the enterprise value, before capital spending or taxes.

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Common mistakes

  • Using market capitalisation instead of enterprise value, which ignores debt and cash.
  • Mixing units, such as EV in millions and EBITDA in thousands.
  • Using a forecast EBITDA with a current EV and comparing it with peers that use trailing numbers.
  • Comparing multiples across sectors with very different capital intensity.
  • Entering a negative EBITDA: the tool gives no result then, and a multiple would not be meaningful anyway.

Sources

About this calculator

This calculator divides a company's enterprise value (market cap plus debt minus cash) by its EBITDA (earnings before interest, taxes, depreciation and amortization) to produce the EV/EBITDA multiple, a capital-structure-neutral measure of how expensive a company is relative to its operating cash-generating ability. A lower multiple can suggest a company is cheap relative to peers; a higher one suggests the market is pricing in stronger growth or quality.

Equity research analysts, private equity and M&A professionals, and value investors use EV/EBITDA to compare companies with different debt levels or tax situations — something the plain P/E ratio can't do since P/E ignores capital structure.

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  • Editorial team

    A multiple is only comparable when both sides were built the same way. Before setting two companies side by side, check that EBITDA covers the same period, trailing or forecast, and that lease costs and minority stakes are treated alike in each enterprise value. Most of the apparent gap between two multiples can come from such differences rather than from real cheapness. Which sector are you comparing, and are you using trailing or forward EBITDA? Tell us your approach.

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