1. What is EV/EBITDA Multiple?

The EV/EBITDA multiple is a valuation ratio that compares a company's enterprise value (EV) to its earnings before interest, taxes, depreciation, and amortization (EBITDA). It's commonly used to assess the value of a company relative to its cash earnings.

2. How Does the Calculator Work?

The calculator uses the EV/EBITDA formula:

Where:

• Enterprise Value = Market Capitalization + Debt - Cash
• EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

Explanation: The ratio shows how many times EBITDA the company is valued at. Lower multiples may indicate undervaluation, while higher multiples may suggest overvaluation.

3. Importance of EV/EBITDA

Details: EV/EBITDA is widely used in financial analysis because it's less affected by capital structure and accounting decisions than P/E ratio. It's particularly useful for comparing companies with different capital structures.

4. Using the Calculator

Tips: Enter enterprise value in USD, EBITDA in USD. Both values must be positive numbers. The result is a unitless multiple.

5. Frequently Asked Questions (FAQ)

Q1: What is a good EV/EBITDA multiple?
A: This varies by industry, but generally multiples below 10 are considered reasonable, while those above 15-20 may indicate overvaluation.

Q2: How does EV/EBITDA compare to P/E ratio?
A: EV/EBITDA is often preferred as it accounts for debt and is less affected by depreciation methods and tax rates.

Q3: When is EV/EBITDA most useful?
A: Particularly valuable when comparing companies with different capital structures or when analyzing capital-intensive businesses.

Q4: What are limitations of EV/EBITDA?
A: Doesn't account for future capital expenditures, and can be misleading for companies with very different working capital requirements.

Q5: Should EV/EBITDA be used alone?
A: No, it should be used alongside other valuation metrics and qualitative factors for comprehensive analysis.