EV/EBITDA

The EV/EBITDA ratio is widely used in valuation of companies. EV is the Enterprise Value (cf.). EBITDA is Earnings Before Interest, Tax, Depreciation and Amortisation (cf.). EV/EBITDA offers buyers a guide to the multiple they will have to pay when acquiring a company, particularly those having issued debt. The ratio offers a useful metric with which to compare companies using a standard equation, although the reasons for differences will need to be assessed further. The ratio is derived simply by dividing a company’s enterprise value by its EBITDA.