GlossaryEV/EBITDA

EV/EBITDA

A capital-structure-neutral way to compare valuations.

Enterprise Value (market cap plus debt, minus cash) divided by EBITDA. Because it strips out financing and accounting choices, EV/EBITDA is the standard way to compare companies that carry very different amounts of debt.

The formula

Enterprise ValueEBITDA
= EV/EBITDA

Why it matters

  • Lets you compare a heavily-indebted company against a debt-free one on equal footing.
  • Common in M&A and private-equity analysis for exactly that reason.
  • Ignores capital expenditure, so it can flatter capital-intensive businesses that need heavy reinvestment.

How to read it

< 8×Inexpensive relative to cash earnings
8×–14×Typical range
> 14×Premium valuation — growth or scarcity priced in

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