Overview

EV/EBITDA is a financial ratio used to compare the enterprise value of a company to its annual EBITDA figure. It is a commonly used valuation metric to determine the value of company when performing a comparable company analysis or precedent transaction analysis. The EBITDA multiple normalizes the impact of capital structure, taxation, fixed assets, etc. of different companies, which allows a side-by-side comparison of their values. The formula for calculating the EBITDA multiple is:

EV/EBITDA = (Market Capitalization + Debt + Minority Interest + Preferred Shares - Cash and Cash Equivalents) / EBITDA

EV/EBITDA are commonly used for:

  • Determining the multiple a company is currently trading at
  • Comparing the valuation of a group of companies
  • Calculating the terminal value of a company in a DCF analysis
  • Determining the target price for a company in equity research
  • Negotiating the price of a private acquisition
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