What this calculator does
EV/EBITDA is the most widely used multiple in company valuation, because both halves ignore capital structure. Enterprise value counts debt and equity together, and EBITDA sits above interest, so two companies financed differently remain comparable.
It also works in reverse, which is where most of its practical use lies. If peers trade at 8 times EBITDA, a company earning $900,000 is worth $6,400,000 of equity after adjusting for its debt and cash, against a $5,000,000 market capitalisation.
The formula
Enterprise value is market capitalisation plus debt less cash. Dividing by EBITDA gives the multiple. Applying a target multiple to EBITDA and reversing the debt and cash adjustment gives an implied equity value.
| Term | Meaning |
|---|---|
| EV/EBITDA | Enterprise value divided by EBITDA, the standard comparison multiple. |
| Implied equity value | What the equity would be worth if the company traded at the target multiple. |
| Target multiple | The multiple comparable companies or transactions trade at. |
The inputs explained
| Field | What to enter |
|---|---|
| Market capitalisation ($) | Market capitalisation. |
| Total debt ($) | Total interest-bearing debt. |
| Cash & equivalents ($) | Cash and equivalents. |
| EBITDA ($) | EBITDA for the last twelve months, or forecast for a forward multiple. |
| Peer / target multiple | The peer or transaction multiple to compare against. |
When to use it
Valuing a private company
Applying a multiple from comparable transactions is the standard approach in a sale.
Screening for relative value
A company trading well below its peer group multiple is worth understanding.
Setting an offer price
The implied equity value translates a multiple into what would actually be paid for the shares.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
What does each EBITDA level imply?
The same balance sheet at three EBITDA levels.
| EBITDA | EV/EBITDA multiple | Implied equity value at 8× |
|---|---|---|
| $600k | 9.67× | $4,000,000.00 |
| $900k | 6.44× | $6,400,000.00 |
| $1200k | 4.83× | $8,800,000.00 |
Questions
Why is EV/EBITDA preferred to P/E?
Because it is unaffected by capital structure and by tax jurisdiction. Two identical businesses with different debt loads will show different P/E ratios but similar EV/EBITDA multiples, which makes the latter far more useful for comparison.
What multiple is normal?
Broadly 6 to 12 times across many industries, but it varies enormously. Stable, high-margin businesses command more; cyclical and capital-intensive ones less. Only comparables within the same sector mean anything.
What is the main weakness?
EBITDA ignores capital expenditure, so a business that must constantly replace equipment looks as good as one that does not. For capital-intensive companies, EV to EBIT or a cash flow measure is more honest.
Should trailing or forward EBITDA be used?
Forward, where a credible forecast exists, since valuation is about the future. Trailing figures are more reliable but can mislead badly when a business has just changed direction.
For the EBITDA figure itself, see the EBITDA calculator. For the enterprise value calculation, see the enterprise value calculator.