EV/EBITDA (Enterprise Value to EBITDA) is a valuation ratio that measures how expensive a company is relative to its operating earnings. It works across companies with different debt levels and tax situations, making it more comparable than P/E ratio.

What is a good EV/EBITDA ratio?

Below 8× is generally considered undervalued or value territory. 8×–12× is fair value for most industries. Above 20× is expensive and only justified by very high growth or exceptional business quality.

When should I use EV/EBITDA instead of P/E ratio?

Use EV/EBITDA when comparing companies with very different debt levels, when analyzing capital-intensive industries (real estate, energy, telecoms), or when making cross-border comparisons where tax rates differ. Investment bankers and private equity firms use EV/EBITDA routinely in acquisition analysis.

What are the limitations of EV/EBITDA?

EBITDA can overstate cash generation for capital-intensive businesses because depreciation is added back even though capital expenditures are still required. For asset-heavy industries, EV/EBIT or EV/Free Cash Flow may be more accurate.

What Is EV/EBITDA? Enterprise Value Ratio Explained

EV/EBITDA (Enterprise Value to EBITDA) is a valuation ratio that tells you how expensive a company is relative to its operating earnings — and it works across companies with different debt levels and tax situations, making it more comparable than P/E ratio.

EV/EBITDA = Enterprise Value ÷ EBITDA

What Is Enterprise Value (EV)?

Enterprise Value = Market Cap + Total Debt − Cash & Equivalents. EV represents the total cost to acquire a business — including taking on its debt and receiving its cash. It gives a more complete picture of a company's value than market cap alone.

What Is EBITDA?

EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization. It approximates operating cash generation before financing costs and accounting charges. By stripping out interest (debt cost), taxes (jurisdiction-dependent), and depreciation/amortization (non-cash), EBITDA makes companies more comparable across industries and geographies.

What Is a Good EV/EBITDA?

Below 8×: Generally considered undervalued or value territory.
8×–12×: Fair value range for most industries.
12×–20×: Elevated — common for growth companies or high-quality franchises.
Above 20×: Expensive — only justified by very high growth or exceptional quality.

EV/EBITDA vs. P/E Ratio

P/E ratio is simple but influenced by capital structure (debt levels) and tax rates. EV/EBITDA is better for comparing companies with very different debt levels, companies in capital-intensive industries (real estate, energy, telecoms), and cross-border comparisons. Investment bankers and private equity firms use EV/EBITDA routinely in acquisition analysis.

EV/EBITDA Limitations

EBITDA can overstate cash generation for capital-intensive businesses — a factory that needs constant equipment replacement still has to spend that money even though depreciation is "added back" in EBITDA. For asset-heavy industries, EV/EBIT or EV/FCF may be more accurate.