Valuation · updated October 21, 2026

What is EV/EBITDA and how is it calculated

EV/EBITDA compares what it would cost to buy the entire company, including its debt, with the profit it makes from operations before interest, taxes, depreciation and amortization. It is fairer than P/E when you compare companies with very different levels of debt.

EV/EBITDA formula

EV/EBITDA=Enterprise value (EV)EBITDA over the last 12 months

EV: Market cap + financial debt − cash. This is what a buyer of the whole company would pay.
EBITDA: Operating profit before interest, tax, depreciation and amortization.

Worked example

A company is worth $80 billion on the market, has $30 billion of debt, $10 billion of cash and EBITDA of $10 billion.

$100 bnEV = 80 + 30 − 10

$10 bnEBITDA

10EV/EBITDA = 100 ÷ 10

Anyone buying the whole business would pay 10 times its yearly operating profit.

How to read EV/EBITDA

Below 8cheap for most sectors

8 - 15the usual range for large companies

Above 15expensive; only justified by strong growth

For companies that invest heavily (telecom, energy, transport), EBITDA looks better than the cash actually left, because it does not subtract capital spending. A low EV/EBITDA is normal there.

When EV/EBITDA can fool you

Banks and insurers: for them, debt is the raw material, so EV/EBITDA is not used. Heavy investment: EBITDA ignores money spent on equipment and networks, which can eat up all the profit.

Questions about EV/EBITDA

Why EV and not market cap?

Because two companies with the same market cap can carry very different debt. Whoever buys the company takes on its debt too, and EV adds it in.

EV/EBITDA or P/E?

Use both. P/E shows the price of shareholders' profit, EV/EBITDA the price of the whole business. When they differ a lot, debt usually explains the gap.

These explanations are for information only. They are not a recommendation to buy or sell.

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