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EV/EBITDA
A capital-structure-neutral valuation multiple comparing Enterprise Value to earnings before interest, taxes, depreciation, and amortization.
EV/EBITDA divides Enterprise Value (see Kaavon's "Enterprise Value (EV)" glossary definition) by EBITDA — earnings before interest, taxes, depreciation, and amortization — a profitability measure that strips out the effects of financing decisions and non-cash accounting charges.
Because both EV and EBITDA are capital-structure-neutral (neither is directly distorted by how much debt a company carries), this ratio is commonly used to compare companies with meaningfully different debt levels on a more equal footing than P/E allows. See Kaavon's dedicated EV/EBITDA article for the full calculation.
Examples
- EV/EBITDA is commonly used to compare companies with different debt levels more fairly than P/E, since both EV and EBITDA are structured to be capital-structure-neutral.
- EBITDA excludes interest, taxes, depreciation, and amortization specifically to isolate a company's underlying operating profitability from financing and accounting choices.