EV/EBITDA Valuation: How Investors Use Enterprise Multiples
EV/EBITDA explained: what it measures, when it's useful, and how investors use EV/EBITDA to value stocks and compare companies.
What is EV/EBITDA?
EV/EBITDA compares a company's enterprise value (value of the whole business) to EBITDA (a proxy for operating earnings). Because it uses enterprise value, it is less sensitive to capital structure than P/E.
When investors use it
- Comparing companies with different debt levels
- Industrials and mature businesses with stable EBITDA
- As part of peer comparison / relative valuation
Use EV/EBITDA in context
Combine multiples with fundamentals and intrinsic value checks.
FAQs
Is EV/EBITDA better than P/E?▼
Not always. EV/EBITDA can be helpful when leverage differs across companies. P/E is simpler for equity investors. Many investors look at both.
What are limitations of EBITDA?▼
EBITDA ignores capital expenditures and working capital needs. For capital-intensive businesses, free cash flow matters a lot.
Related
Intrinsic Investor is for education and research only. Not financial advice.