Definition
EV/EBITDA is the most widely used valuation multiple in corporate finance and M&A. By using enterprise value (which includes debt) and EBITDA (which excludes interest), it provides a capital-structure-neutral comparison. Lower multiples may indicate undervaluation; however, growth, margins, and risk profiles must be considered.
functions Formula
EV/EBITDA = Enterprise Value / EBITDA
lightbulb Example
Company has EV of $600M and EBITDA of $60M. EV/EBITDA = 10x. If comparable companies trade at 12-14x, this company appears undervalued, assuming similar growth and margin profiles.
verified_user Key Points
- Most common M&A valuation metric
- Lower than peers may indicate undervaluation
- Sector-specific ranges vary widely
- Accounts for debt unlike P/E ratio