Meaning
EV/EBITDA compares total company value with operating earnings before depreciation and amortization.
Formula
Enterprise value / EBITDA
Practical reading
Useful for valuation comparisons inside the same industry.
Calculation detail
Enterprise value is commonly market capitalization + total debt + preferred equity + minority interest β cash. EV/EBITDA then divides that enterprise value by EBITDA.
What to check
It is useful when comparing firms with different debt levels because it considers both equity and debt. Compare companies with a similar business model and capital intensity.
Limits and caveats
EBITDA excludes capital expenditure, interest and taxes, so a low multiple does not by itself prove that cash generation is strong.