What is a good EV/EBITDA multiple?

There is no universal good number. Multiples differ by industry, growth and interest rates, so the useful comparison is against similar companies at the same time. Single digits are common in mature industries, and fast growers can trade far higher.

Why use EV instead of market cap?

EBITDA is earned for all investors, lenders and shareholders alike, so it should be matched with a value that includes both. Market cap covers only shareholders, which would flatter a company that carries a lot of debt.

Does it matter if EBITDA is adjusted?

Yes. Analysts add back one-off costs and sometimes stock compensation. Whatever treatment you pick, apply it to the target and to the comparables so the multiples line up.

How is this different from a DCF?

A multiple prices a company relative to others, so it carries the market's mood. A DCF builds value from forecast cash flows. Using both and comparing them is standard practice.

EV/EBITDA Valuation Calculator: Value at a Multiple

EV/EBITDA valuation calculator

EV/EBITDA compares what the whole business costs with the operating profit it earns before interest, taxes, depreciation and amortization. Enter EBITDA and a multiple to see what a company is worth, or enter a share price to see the multiple it implies. The calculator carries the result through debt and cash to a value per share.

Value a company at a multiple

Value per share$29.88Enterprise value $807.50, equity value $597.50.

Enterprise value: $807.50
Equity value: $597.50

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Try one yourself

Cedar Ridge Dental earns EBITDA of $40 million. Similar companies sell at 10.7x EBITDA. It has $300 million of debt, $80 million of cash and 18 million shares.

The two directions

Going forward, you multiply EBITDA by a multiple taken from similar companies to get enterprise value, then cross the bridge to equity value. Going backward, you start with a market price, add net debt to reach enterprise value, and divide by EBITDA to see how richly the market values each dollar of operating profit.

Formulas

EV = EBITDA x multiple. Equity value = EV - debt + cash. Value per share = equity value / shares. Implied multiple = (price x shares + debt - cash) / EBITDA. This version leaves out preferred stock and minority interest; the bridge calculator handles those.

A worked example

A company earns EBITDA of $85 million. It has $250 million of debt, $40 million of cash and 20 million shares. Comparable companies trade near 9.5 times EBITDA.

Value per share at three multiples, in $ millions except per share.
Multiple	Enterprise value	Equity value	Per share
8.0x	$680.00	$470.00	$23.50
9.5x	$807.50	$597.50	$29.88
11.0x	$935.00	$725.00	$36.25

At 9.5x, enterprise value is $807.5 million. After subtracting $250 million of debt and adding $40 million of cash, equity value is $597.5 million, or $29.88 a share. Now suppose the stock trades at $31. Equity value is $620 million and enterprise value $830 million, so the market is paying 9.76 times EBITDA. That is a little richer than the 9.5x benchmark.

Using a multiple sensibly

A multiple is only as good as the comparison behind it. Companies in the same industry with similar growth, margins and size should trade at similar multiples. A faster grower deserves a higher one. Use the same period for EBITDA and for the comparables, such as the last twelve months, and the same definition of EBITDA, adjusted the same way for one-off items.

EBITDA ignores capital spending and taxes, so two companies with the same multiple can have very different cash flows. Capital-heavy businesses often trade at lower EV/EBITDA than asset-light ones for that reason. The calculator rejects zero or negative EBITDA because a multiple of a loss has no useful meaning.

Mistakes that cost points

Applying an EV multiple and calling the answer a share price without subtracting debt and adding cash.
Comparing a multiple built on next year's EBITDA with one built on last year's.
Picking comparables that differ in size, growth or industry and then trusting the average.
Dividing market cap by EBITDA. The numerator and denominator must both be enterprise-level.
Using a multiple on negative EBITDA.

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