Valuation ratio

EV/EBITDA

EV/EBITDA compares a company's enterprise value (market cap plus debt, minus cash) to its earnings before interest, taxes, depreciation and amortisation. It's a valuation multiple that, unlike P/E, accounts for debt and ignores financing and accounting differences — making it popular for comparing companies with different capital structures.

Formula

EV/EBITDA = Enterprise Value / EBITDA

How to interpret it

A lower EV/EBITDA can indicate a cheaper valuation. Because it strips out debt and non-cash charges, it's especially useful for comparing capital-intensive firms or acquisition targets. Typical "fair" ranges vary by sector and growth, so always compare within a peer group.

Example

A company with an enterprise value of $1.2 billion and EBITDA of $150 million has an EV/EBITDA of 1200 / 150 = 8. A peer trading at 12 looks more expensive on this measure.

Common uses

Compare companies with different debt levels on a capital-structure-neutral basis.
Value capital-intensive or acquisition-target companies where P/E is less reliable.
Screen for relatively cheap businesses within a sector using a lower EV/EBITDA.
Pair EV/EBITDA with free cash flow to avoid being misled by heavy capital spending.

Limitations

EBITDA ignores real costs — capital spending, interest and taxes — so it can flatter cash-hungry businesses.
EV/EBITDA shouldn't be used alone, and is less meaningful for banks and insurers.
Pair it with free cash flow and debt levels.

In Fin Screener

Fin Screener includes EV/EBITDA among the valuation measures it reports for each stock, helping you compare companies on a debt-aware basis rather than price alone.

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