EV/EBITDA
Definition
EV/EBITDA is enterprise value divided by EBITDA — the most widely used valuation multiple in banking. Because both numerator and denominator are capital-structure-neutral (before interest) and EBITDA is before D&A, it enables comparison across companies with different leverage, tax situations, and depreciation policies.
It is quoted on trailing (LTM) or forward (NTM / next fiscal year) EBITDA; forward multiples are lower for growing companies. Typical ranges vary enormously by sector, growth, and rate environment, so multiples are only meaningful against comparable companies.
Weaknesses: EBITDA ignores capex and working capital, so EV/EBITDA can flatter capital-intensive businesses — EV/EBIT or EV/(EBITDA − capex) are common checks.
Why interviewers ask
"Why use EV/EBITDA instead of P/E?" (capital-structure and D&A-policy neutrality) and "two companies trade at different EV/EBITDA — why?" (growth, margins, risk, capital intensity) are core questions. The trap is numerator-denominator inconsistency, e.g., including an equity-method investment's value in EV while EBITDA excludes its earnings.
Related terms
Interviews don't test definitions — they test recall under pressure.
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