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Glossary
Valuation

EV/EBITDA

Enterprise value against operating earnings. The takeover world's favourite multiple.

Because both the numerator and denominator ignore capital structure, EV/EBITDA lets you compare companies with very different debt loads and tax situations. This is why it dominates in private equity and M&A.

It carries EBITDA's original sin: it pretends depreciation is not a cost. For an asset-heavy business, a flattering EV/EBITDA can sit on top of a company that produces no free cash whatsoever.

The formula
EV/EBITDA = Enterprise value ÷ EBITDA
Figure

Why the debt is the engine

Debt 70secured on the targetEquity 30+30%Debt 70, unchangedEquity 60, doubled

Put in 30, borrow 70, secure the loan against the company you are buying. A 30% rise in the business doubles your money. The same arithmetic works in reverse, which is why buyouts fail loudly.

Why it matters

It is the multiple most likely to be quoted at you in a professional context.

The mistake everyone makes

Using it on a capital-intensive business without also checking free cash flow.

Related terms

Enterprise value
What it would really cost to buy the whole company, debt included.
EBITDA
Profit before the four things that make companies look different from one another.
Free cash flow
The cash actually left over after the business has paid to keep itself alive.

See EV/EBITDA on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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