Business & finance · also called enterprise value to EBITDA, EBITDA multiple
EV/EBITDA
EV/EBITDA is a valuation ratio that divides a company's enterprise value (market cap plus debt minus cash) by its EBITDA, showing how many years of operating earnings the business is priced at.
EV/EBITDA is one of the most common ways to compare what companies are worth relative to their profits. Enterprise value (EV) is roughly market capitalization plus debt minus cash, the cost of buying the whole business. Dividing by EBITDA (often Adjusted EBITDA) gives a multiple: a company valued at 15x EBITDA is priced at 15 years of current operating earnings.
Analysts use it because it ignores differences in financing and tax, making it easier to compare companies with different debt levels or in different countries. Multiples can be based on trailing (last 12 months) or forward (next 12 months, from guidance or estimates) EBITDA.
In ad tech, fast-growing platforms have traded at high multiples, while slower, legacy businesses and agency holding companies trade at lower ones. Private equity buyers in take-private deal deals often think in EV/EBITDA terms. Watch definitions: "adjusted" EBITDA that excludes stock-based compensation can make multiples look lower than they really are.
Think of it like this
EV/EBITDA is like judging a rental flat by how many years of rent it would take to pay back its price, including any mortgage you would take over.
An example
A company with market cap US$4B, debt US$1B, cash US$0.5B (EV US$4.5B) and adjusted EBITDA of US$300M trades at 15x EV/EBITDA.
Related terms
Market capitalization
Market capitalization is the total stock-market value of a public company, calculated as its share price multiplied by the number of shares outstanding.
Adjusted EBITDA
Adjusted EBITDA is earnings before interest, taxes, depreciation and amortisation, further adjusted by the company to exclude items such as stock-based compensation and one-time costs; it is a non-GAAP measure.
Take-private deal
A take-private deal is when an investor, usually a private equity firm, buys all the shares of a public company so it is delisted from the stock exchange and becomes privately owned.
Guidance (forecast)
Guidance is a public company's own forecast of its future results, such as next quarter's revenue or full-year adjusted EBITDA, usually given as a range alongside an earnings report.
Earnings report
An earnings report is the periodic announcement, usually quarterly, in which a public company discloses its revenue, profit and other key results, often with an investor call and updated guidance.