Enterprise value/EBITDA (more commonly referred to by the acronym EV/EBITDA) is a popular valuation multiple used in the finance industry to measure the value of a company. It is the most widely used valuation multiple based on enterprise value and is often used in conjunction with, or as an alternative to, the P/E ratio (Price/Earnings ratio) to determine the fair market value of a company.
A key advantage of this multiple is that it is independent of the capital structure (i.e. the mixture of debt and equity), and, therefore, this multiple can be used to directly compare companies with different levels of debt. It also avoids the significant shortcoming of the P/E ratio which can be materially affected by the level of leverage in the company.
An industry average EV/EBITDA multiple is calculated on a sample of listed companies to use for comparison to the company of interest (i.e., as a benchmark). An example of such an index is one that provides an average EV/EBITDA multiple on a wide sample of transactions on private companies in the Eurozone.
The reciprocate multiple EBITDA/EV is used as a measure of cash return on investment.
- Earnings before interest and taxes (EBIT)
- Earnings before interest, taxes, depreciation, and amortization (EBITDA)
- Gross profit
- Operating income before depreciation and amortization (OIBDA)
- Pharmaceutical Valuation Methodology & Case Studies Archived 2011-07-06 at the Wayback Machine
- "Argos Soditic index". Archived from the original on 2009-10-03. Retrieved 2009-09-29.