EV/EBITDA

EV/EBITDA divides enterprise value (market capitalization plus debt minus cash) by earnings before interest, taxes, depreciation and amortization. The numerator captures the total claim on the business — both equity and debt — and the denominator strips out financing and accounting choices that distort net income. That neutralization is the multiple's main appeal: two companies with identical operating profiles but very different leverage will look the same on EV/EBITDA, where they would diverge on P/E. EV/EBITDA is the lingua franca of M&A, leveraged buyouts, and credit analysis, and it is the lens we lean on when comparing capital-intensive businesses across cyclical environments. Its weaknesses are real. EBITDA strips out depreciation and amortization, which for a capital-heavy business are not an accounting fiction — they are a real economic cost of replacing the asset base. A high-capex business at 8x EV/EBITDA may be more expensive than a software business at 18x EV/EBITDA once maintenance capital expenditures are deducted. We always pair EV/EBITDA with EV/EBIT (which reintroduces depreciation) and EV/(EBITDA − Maintenance capex) for capital-intensive names. EV/EBITDA is also unhelpful for financials, where interest is operating revenue, and for unprofitable software where EBITDA is mostly add-backs. Used in its proper context — industrial, consumer, healthcare, energy — it is one of the cleanest cross-sectional valuation lenses available.