Enterprise value/EBITDA (more commonly referred to by the acronym EV/EBITDA) is a popular valuation multiple used to determine the fair market value of a company. By contrast to the more widely available P/E ratio (price-earnings ratio) it includes debt as part of the value of the company in the numerator and excludes costs such as the need to replace depreciating plant, interest on debt, and taxes owed from the earnings or denominator. It is the most widely used valuation multiple based on enterprise value and is often used as an alternative to the P/E ratio when valuing companies believed to be in a high-growth phase, and thus credits enterprises with higher startup costs, high debt relative to equity, and lower realised earnings.
A key advantage of EV/EBITDA is that it is independent of the capital structure (i.e. the mixture of debt and equity). Therefore this multiple can be used to compare companies with different levels of debt. It also avoids the significant shortcoming of the P/E ratio which can be materially affected by the level of leverage in the company.[1]
For benchmarking purposes, an industry-average EV/EBITDA multiple is often calculated. This is based on a sample of listed companies to be used for comparison to the company of interest. An example of such an index is one that provides an average EV/EBITDA multiple on a wide sample of transactions on private companies in the Eurozone.[2]
The reciprocal multiple EBITDA/EV is used as a measure of cash return on investment.
ebitda, enterprise, value, ebitda, more, commonly, referred, acronym, ebitda, popular, valuation, multiple, used, determine, fair, market, value, company, contrast, more, widely, available, ratio, price, earnings, ratio, includes, debt, part, value, company, n. Enterprise value EBITDA more commonly referred to by the acronym EV EBITDA is a popular valuation multiple used to determine the fair market value of a company By contrast to the more widely available P E ratio price earnings ratio it includes debt as part of the value of the company in the numerator and excludes costs such as the need to replace depreciating plant interest on debt and taxes owed from the earnings or denominator It is the most widely used valuation multiple based on enterprise value and is often used as an alternative to the P E ratio when valuing companies believed to be in a high growth phase and thus credits enterprises with higher startup costs high debt relative to equity and lower realised earnings Contents 1 Use 2 See also 3 References 4 External linksUse editA key advantage of EV EBITDA is that it is independent of the capital structure i e the mixture of debt and equity Therefore this multiple can be used to compare companies with different levels of debt It also avoids the significant shortcoming of the P E ratio which can be materially affected by the level of leverage in the company 1 For benchmarking purposes an industry average EV EBITDA multiple is often calculated This is based on a sample of listed companies to be used for comparison to the company of interest An example of such an index is one that provides an average EV EBITDA multiple on a wide sample of transactions on private companies in the Eurozone 2 The reciprocal multiple EBITDA EV is used as a measure of cash return on investment See also editEarnings before interest and taxes EBIT Earnings before interest taxes depreciation and amortization EBITDA Gross profit Operating income before depreciation and amortization OIBDA PEG ratio price earnings to growth ratio RevenueReferences edit Pharmaceutical Valuation Methodology amp Case Studies Archived 2011 07 06 at the Wayback Machine Argos Soditic index Archived from the original on 2009 10 03 Retrieved 2009 09 29 External links editEV EBITDA on Investopedia com The Hindu Business Line How retail investors can profit from EV EBITDA Slides on NYU Stern School of Business web site EBITDA Challenging the Calculation by Lisa Smith on Investopedia A Clear Look At EBITDA by Ben McClure on Investopedia nbsp This economics related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title EV Ebitda amp oldid 1142109693, wikipedia, wiki, book, books, library,
