EV/EBITDA
Enterprise value divided by earnings before interest, taxes, depreciation, and amortization.
What Is EV/EBITDA?
EV/EBITDA is considered the gold standard valuation ratio because it accounts for debt structure and is not affected by depreciation policies. It answers: 'How many years of cash earnings would it take to pay off the entire acquisition cost?'
Formula
EV/EBITDA = Enterprise Value / EBITDAWhy It Matters
Lower EV/EBITDA ratios generally indicate better value. It's more reliable than P/E for comparing companies across industries because it neutralizes differences in capital structure, tax rates, and accounting methods.
Typical Ranges: Below 10 is generally considered cheap. 10-15 is fair. Above 20 is expensive. Industry context matters significantly.
Related Terms
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