EV to EBITDA calculator

This multiple works because its two parts agree about what is being valued. Enterprise value includes debt, and EBITDA is measured before interest, so both describe the business available to all its funders. A P/E ratio does the opposite: equity price over profit after interest, which is the equity holder's view.

That is why EV to EBITDA is the standard multiple in an acquisition. A buyer takes on the debt, so the price they pay is enterprise value, and the earnings they get are before the interest on the debt they inherited. P/E against EV to EBITDA sets the two views next to each other.

Taking out depreciation and amortisation removes accounting choices about asset lives, and taking out tax removes jurisdiction. What is left is closer to the cash the operations throw off, which is what makes companies in different countries with different asset ages comparable at all.

The cost of that is capital spending. A business consuming its equipment shows the same EBITDA as one that is not, and only the capital expenditure line reveals the difference. Free cash flow puts that spending back in.

A multiple is a comparison or it is nothing. Thirteen times means little alone; against a peer at 10 times, as in the second example, it means the first business is priced 30 percent higher for each dollar of operating earnings.

The difference might be growth, margins, market position, or optimism. The multiple cannot say which, and a lower multiple is not automatically the better purchase, since something usually explains the discount.

One enterprise value against one year of EBITDA. It is a relative measure by construction, at its most useful across a set of comparable businesses rather than on its own. The enterprise value calculator builds the numerator, and EBITDA covers the denominator. This is educational material, not financial advice.