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EV/EBITDA
Enterprise value divided by EBITDA, used to compare companies regardless of capital structure.
EV/EBITDA
EV/EBITDA compares a company's total value (including debt) to its operating cash earnings.
Formula
EV/EBITDA = Enterprise Value ÷ EBITDA
Where Enterprise Value = Market Cap + Total Debt − Cash
Why use it over P/E
- Capital-structure neutral: Works for companies with different debt levels
- Ignores tax differences: Useful for cross-border comparisons
- Pre-depreciation: Better for capital-intensive industries
Typical ranges
- Below 8: Often considered cheap
- 8–15: Fair value for most industries
- Above 20: Growth premium or overvaluation
Tips
- Compare only within the same sector
- Pair with free cash flow analysis to verify EBITDA quality
- Watch for companies that capitalize expenses to inflate EBITDA
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Valuation
Difficulty
Beginner
Reading Time
1 min
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Where You'll See This
This concept appears throughout stock detail pages and financial data.