1. What is EV/EBITDA?

The EV/EBITDA ratio compares a company's Enterprise Value (EV) to its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). It's a valuation metric used to assess whether a company is overvalued or undervalued relative to its peers.

2. How Does the Calculator Work?

The calculator uses the EV/EBITDA formula:

Where:

• \( Market\ Cap \) — Market capitalization (total equity value)
• \( Debt \) — Total debt of the company
• \( Cash \) — Cash and cash equivalents
• \( EBITDA \) — Earnings Before Interest, Taxes, Depreciation, and Amortization

Explanation: Enterprise Value represents the total value of a company, accounting for both equity and debt, while EBITDA represents operating profitability before non-cash expenses and capital structure impacts.

3. Importance of EV/EBITDA

Details: EV/EBITDA is widely used in financial analysis because it normalizes for differences in capital structure, taxation, and fixed asset investments, making it useful for comparing companies across industries and regions.

4. Using the Calculator

Tips: Enter all values in USD. Market Cap and Debt should be positive values. EBITDA must be greater than zero for the calculation to be meaningful.

5. Frequently Asked Questions (FAQ)

Q1: What is a good EV/EBITDA ratio?
A: Generally, lower ratios may indicate undervaluation. However, "good" ratios vary by industry - typically 8-12 is average for many industries.

Q2: How does EV/EBITDA differ from P/E ratio?
A: EV/EBITDA considers the entire enterprise value (including debt) and uses EBITDA instead of net income, making it less affected by capital structure and accounting decisions.

Q3: When is EV/EBITDA most useful?
A: Particularly useful for capital-intensive industries, leveraged buyouts, and when comparing companies with different capital structures.

Q4: What are the limitations of EV/EBITDA?
A: Doesn't account for future capital expenditures, can be misleading for companies with high growth capex needs, and doesn't reflect working capital requirements.

Q5: Should EBITDA be trailing or forward?
A: Both can be used - trailing (historical) is more factual while forward (projected) reflects expectations. Analysts often look at both.