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Valuation

EV/EBITDA

Enterprise value divided by EBITDA — a capital-structure-neutral cash earnings multiple.

Definition

EV/EBITDA compares the entire enterprise value (equity + debt - cash) to operating cash earnings before interest, taxes, depreciation and amortisation. Unlike P/E it is not distorted by leverage, tax rate or non-cash D&A, which makes it the preferred multiple in M&A and for capital-intensive industries (telecom, utilities, energy). Lower is cheaper; sector context is essential — software trades at 20x while utilities at 8x.

Formula

EV       = Market Cap + Total Debt - Cash & Equivalents
EV/EBITDA = EV / EBITDA

EBITDA = EBIT + Depreciation + Amortisation

Worked example

A company has market cap $4B, debt $2B, cash $500M, so EV = $5.5B. EBITDA last twelve months = $700M. EV/EBITDA = 5.5 / 0.7 = 7.86x. If sector median is 10x, the stock is trading at a 21% discount on cash earnings.

How ARIA Analyst uses it

ARIA scores EV/EBITDA against industry medians from its 30-year fundamentals database and weights it more heavily for cyclicals than for software in the Valuation Agent.

Related terms

  • EBITDA

    Earnings before interest, taxes, depreciation and amortisation — operating cash earnings proxy.

  • P/E Ratio

    Share price divided by earnings per share — the most popular valuation multiple.

  • EV/Sales

    Enterprise value to revenue — valuation lens for companies without earnings yet.

  • Discounted Cash Flow (DCF)

    Intrinsic value of an asset as the present value of its future cash flows.

See EV/EBITDA in action on any asset

ARIA Analyst computes EV/EBITDA automatically as part of a hybrid multi-agent investment report — 5 deterministic scoring agents plus AI augmentation (ML ensemble, Bull vs Bear debate, 10 Deep Search agents on Premium). Get yours in seconds.

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