EV/EBITDA

From Wikipedia, the free encyclopedia

EV/EBITDA is a valuation multiple that is often used in parallel with, or as an alternative to, the P/E ratio. This ratio can also be used as proxy for cash flow. Typically this ratio is applied when valuing cash-based businesses.

An advantage is that, as its numerator EV (Enterprise Value)includes the value of debt as well as equity, it is unaffected by a company's capital structure. Another one, for international comparisons for example, is that its denominator is not influenced by taxes.

Therefore, this multiple can be used for direct cross-companies application. Often, an industry average EV/EBITDA multiple is calculated to benchmark against.

The reciprocate multiple (EBITDA/EV) is used as a cash return on investment.

EBITDA stands for "Earnings Before Interest, Taxes, Depreciation, & Amortization"

[edit] Formula

EV / EBITDA = (MarketvalueofEquity + Marketvalueofdebt − Cash) / EBITDA

[edit] External links

• EV/EBITDA on Investopedia.com
• The Hindu Business Line: How retail investors can profit from EV/EBITDA