EV/EBITDA is the enterprise value equivalent of the P/E ratio — it measures what acquirers are paying per dollar of operating earnings. Because it uses enterprise value (which is capital-structure-neutral) and EBITDA (which strips out interest, taxes, depreciation, and amortization), it allows comparison across companies with different leverage, tax situations, and depreciation policies. EV/EBITDA is the most widely used valuation metric in M&A, private equity, and institutional investment analysis.
EV/EBITDA = Enterprise Value / EBITDA (TTM)
GeminIQ divides enterprise value by TTM EBITDA, both derived from SEC filing data. EBITDA is taken from the filing directly or calculated as EBIT + Depreciation & Amortization.
A: Below 8x is generally considered value territory. Between 8x and 15x is moderate. Above 15x is expensive unless justified by growth. Large US companies have often traded in the low-to-mid teens. Private equity firms typically target acquisitions in the 6-10x range.
A: An acquirer buys the entire business — equity and debt — so enterprise value is the relevant price. EBITDA approximates the pre-investment cash flow of the business before financing and tax decisions, making it comparable across different potential acquisition targets with different capital structures.
A: Both the numerator (EV) and denominator (EBITDA) are sensitive to definition choices. EV depends on debt and cash definitions. EBITDA depends on whether it is calculated from EBIT + D&A or from operating income + D&A, which can produce different results if non-operating items are classified differently. GeminIQ uses EBIT + D&A when EBITDA is not directly reported.
A: It tells you how many years of current operating earnings, before interest, taxes, depreciation, and amortization, it would take to pay back the full price of the business including its debt. An EV/EBITDA of 10 means the company is valued at ten times its trailing twelve-month EBITDA.
A: For a buyer, lower is cheaper: a lower multiple means paying less for each dollar of operating earnings. A higher multiple is not necessarily bad, since fast-growing or high-margin companies earn premium multiples. Compare against peers and the company's own history rather than a fixed cutoff.
Further Reading: EV/EBITDA vs. P/E: Which Valuation Multiple Should You Use?
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