Definition of EV/EBITDA
The EV/EBITDA ratio (Enterprise Value over EBITDA) measures how many years of gross operating profit it would take to buy out the entire company at the current market price — debt included.
It is the valuation multiple favoured by investment funds and investment banks because it is neutral with respect to the financing structure and the depreciation policy — two elements that vary widely from one company to another.
Calculation formula
EV/EBITDA = Enterprise Value ÷ EBITDA
EV = Market capitalisation + Net debt · Net debt = Financial debt − Cash
| Component | Definition | Where to find it |
|---|---|---|
| Market capitalisation | Share price × Number of shares outstanding | Financial data providers (e.g. Yahoo Finance) |
| Net debt | Financial debt (LT + ST) − Cash | Balance sheet in the annual report |
| EV (Enterprise Value) | Market cap + Net debt | Calculated |
| EBITDA | Operating income + Depreciation | Income statement / earnings releases |
A worked example
Industrial small cap: price €18 · 8M shares · net debt €12M · EBITDA €6M
Market capitalisation = 18 × 8 = €144M
EV = 144 + 12 = €156M
EV/EBITDA = 156 ÷ 6 = 26x — high for an industrial company
EV/EBITDA calculator
Calculate a small cap's EV/EBITDA
Market cap
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EV
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EV/EBITDA
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Interpretation thresholds
| EV/EBITDA | General interpretation | Screener score |
|---|---|---|
| < 6x | Very attractive — potential discount or undervalued sector | 10 / 10 pts |
| 6 – 8x | Attractive — reasonable valuation | 7 / 10 pts |
| 8 – 12x | Fair valuation — quality or growth premium | 4 / 10 pts |
| 12 – 18x | Growth premium — justified if CAGR > 15% | 1 / 10 pts |
| > 18x | High valuation — requires very strong growth | 0 / 10 pts |
Reference sector multiples
| Sector | Median EV/EBITDA | Attractive EV/EBITDA |
|---|---|---|
| SaaS / Software | 12 – 20x | < 12x |
| Healthcare / Medtech | 10 – 16x | < 10x |
| B2B services | 8 – 14x | < 8x |
| Light industry | 6 – 10x | < 6x |
| Distribution | 5 – 9x | < 6x |
| Food & beverage | 6 – 10x | < 7x |
EV/EBITDA vs the P/E — what's the difference?
| EV/EBITDA | P/E | |
|---|---|---|
| Numerator | Enterprise Value (market cap + net debt) | Market capitalisation only |
| Denominator | EBITDA (before interest, taxes, depreciation) | Net income (after everything) |
| Neutral on debt | Yes — captures debt in the EV | No — indebted companies penalised |
| Neutral on depreciation | Yes | No |
| Recommended use | Cross-company comparison, M&A, value investing | Quick valuation, companies with little debt |
Go further
Cluster hub
Price-to-Earnings Ratio (P/E)
Guide
EBITDA margin
Guide
Net debt / EBITDA
Guide
Value investing
New to screening European small caps? See the European small-cap stock screener guide and the glossary.
Frequently asked questions
The EV/EBITDA ratio measures how many times the annual EBITDA would be needed to buy out the whole company — debt included. It is the valuation multiple most used by professionals because it is neutral with respect to the financing structure and depreciation.
EV = Market capitalisation + Net debt. EV/EBITDA = EV ÷ EBITDA. Market capitalisation = price × number of shares. Net debt = financial debt − cash (read from the balance sheet). EBITDA appears in earnings releases or can be reconstructed from the income statement.
It depends on the sector. As a rule of thumb: < 8x is attractive for a profitable small cap. 8-12x is reasonable with growth. > 15x requires very strong growth to be justified. Always compare to the sector and to the stock's own history.
The P/E relates market capitalisation to net income — it is influenced by debt and taxation. EV/EBITDA incorporates net debt into the valuation and neutralises depreciation — it makes it possible to compare companies with very different levels of debt. EV/EBITDA is preferred for sector comparisons and M&A transactions.