EV/EBITDA
A multiple that accounts for debt, letting you compare companies fairly across capital structures.
P/E has a blind spot: it ignores debt. Two companies with the same P/E can differ hugely if one is debt-free and the other is leveragedControlling a large position with a small amount of money.. EVA company’s total value — market cap plus net debt./EBITDAEarnings before interest, tax, depreciation, amortisation. fixes this by valuing the whole business, debt included.
EV = Market cap + Debt − Cash; multiple = EV ÷ EBITDA
Enterprise value is what it’d cost to buy the whole business (taking on its debt, getting its cash).
EVA company’s total value — market cap plus net debt./EBITDAEarnings before interest, tax, depreciation, amortisation. is the “acquirer’s multiple” — it asks what the entire enterprise costs relative to its operating cash generation, regardless of how it’s financed. That makes it the fairest way to compare companies with very different debt levels, and it’s the go-to for capital-heavy sectors.
Common mistakeRelying on EVA company’s total value — market cap plus net debt./EBITDAEarnings before interest, tax, depreciation, amortisation. alone for heavily-indebted firms — recall EBITDAEarnings before interest, tax, depreciation, amortisation. ignores interest, tax and capex. Pair it with debt and free-cash-flow checks.
Key takeawayEVA company’s total value — market cap plus net debt./EBITDAEarnings before interest, tax, depreciation, amortisation. values the whole enterprise (including debt) against operating cash, enabling fair comparison across different capital structures.
FAQs
When is EV/EBITDA better than P/E?
When comparing companies with very different debt loads, or capital-intensive businesses where depreciation distorts net profit. EV/EBITDA neutralises financing differences; P/E doesn’t. Use both for a fuller picture.