EV/EBITDA: when it is more honest than P/E
beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
P/E (price to earnings) looks only at the shareholders' part of a business and ignores debt. Two companies with identical profit but different leverage get the same multiple — even though the buyer of the first gets a business and the buyer of the second gets a business together with a loan.
What EV/EBITDA fixes
EV/EBITDA puts the value of the whole enterprise in the numerator: capitalisation plus net debt. In the denominator sits profit before interest, taxes, depreciation and amortisation — that is, before capital structure had a chance to affect it.
5,49
The result is comparable across companies with different leverage — something P/E (price to earnings) cannot do by construction.
Where it fails
For banks. Debt is not a burden for a bank but its raw material: it raises money in order to place it. Adding that debt to enterprise value is meaningless, and the multiple does not apply to banks at all.
With negative EBITDA. Dividing by a near-zero figure produces an absurdly large number that looks like a valuation.
Read it alongside leverage
1,50
A low EV/EBITDA with high debt is not cheapness but payment for risk.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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