EV/EBITDA
EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial valuation metric used to assess a company’s overall value compared to its earnings. It is calculated by dividing the enterprise value (EV) by the company’s EBITDA. EV/EBITDA is commonly used by investors and analysts to compare the relative value of companies within the same industry, as it provides a clear picture of a company’s profitability without the effects of its capital structure.
Example
A company with an EV of $100 million and an EBITDA of $20 million has an EV/EBITDA ratio of 5, which investors use to compare its valuation against industry peers.
Key points
• A valuation metric that compares a company’s enterprise value to its EBITDA.
• Used to assess a company’s overall value relative to its profitability.
• Helps investors compare companies within the same industry.
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