BAJAJ BROKING
July 15, 2025
4 mins read
EV/EBITDA is a financial ratio that compares a company’s total value (known as Enterprise Value or EV) to the earnings it generates before paying interest or taxes and before accounting for depreciation and amortisation (EBITDA). It’s a popular tool that helps investors and analysts gauge how fairly a company is valued in the market. Read on as we discuss all about what is EV EBITDA.
This ratio tells you how many times a company's EBITDA you'd have to pay if you were to buy the whole business. In simple terms, it helps you understand whether a stock is expensive or cheap in relation to how much profit it generates from its core operations.
Because it eliminates the effects of varying debt levels and accounting methods, EV/EBITDA is useful for comparing companies across different industries or with varying financial structures.
EV/EBITDA is widely used for a few key reasons:
It provides a clearer picture of a company’s value than just examining its profits.
It’s especially helpful when comparing companies in the same sector.
EV/EBITDA Ratio is often used in:
Valuation analysis (e.g., “Company A trades at 7x EV/EBITDA”)
M&A deals to decide on the acquisition price
Equity research to estimate a stock’s target price
Calculating terminal value in financial models like DCF
Like any financial metric, EV/EBITDA has its strengths and weaknesses. Whether it's the right tool to use depends on the specific context.
Simple to calculate: The data needed is easy to find from public financial statements.
Widely accepted: It’s a common benchmark used by analysts, investors, and bankers.
Great for comparing companies: Especially useful when comparing businesses in the same industry, as it removes the impact of different capital structures.
Ideal for mature businesses: It works well for companies with steady earnings and low capital spending.
Focuses on core operations: Since it ignores interest, taxes, and non-cash items, it gives a clearer view of a company’s operational performance.
Ignores future growth: It doesn’t factor in how fast a company is expected to grow or the conditions of the market it operates in.
Can be skewed by one-off events: Temporary changes like new accounting rules or shifts in interest rates can affect the ratio.
Not suitable for all businesses: It may not give a fair picture for companies with large non-cash costs or erratic earnings.
Overlooks capital expenses: It doesn’t account for how much a company spends on assets, which affects cash flow.
Hard to compare growth premiums: Differences in valuation (why one company is valued higher or lower than another) can be hard to explain with this ratio alone.
Cash flow may be misrepresented: Since EBITDA is not actual cash flow, relying on it can sometimes be misleading.
One of the very effective ways to understand how EV/EBITDA works is to roll up your sleeves and try calculating it on your own. Follow these steps to calculate EV/EBITDA ratios and value a company using real-world data:
Pick a sector you're interested in, for example, the beverage industry.
Identify 5 to 10 companies that operate in a similar space and seem like good comparisons.
Remove companies that are too different, maybe they’re much bigger, focus on different products, or operate in totally different regions.
Gather financial data for the past 3 years, look for revenue, gross profit, EBITDA, and earnings per share (EPS).
Find each company’s latest share price, total shares outstanding, and net debt.
Use the formula:
EV = Market Cap + Net Debt
(Market Cap = Share Price × Shares Outstanding)
For each of the 3 years, divide EV by the EBITDA to get the EV/EBITDA multiple.
Look at how each company's EV/EBITDA multiple stacks up against the others.
Try to figure out why some companies trade at higher (premium) or lower (discounted) multiples, is it because of growth, stability, or brand strength?
Based on your findings, decide what EV/EBITDA multiple seems fair for the company you’re trying to value.
An EV/EBITDA calculator is a handy tool for investors and analysts who want to quickly assess a company’s valuation. It calculates the EV/EBITDA ratio by using details like the company’s market value, debt, preferred shares, minority interest, and EBITDA.
By dividing Enterprise Value (EV) by EBITDA, the calculator shows how much investors are paying for every rupee or dollar of operating profit the company generates. Some calculators also let users compare this ratio with industry averages or adjust it based on assumptions like market trends or expected growth.
The enterprise multiple, another name for the EV/EBITDA ratio, gives valuable insights into a company's worth and financial health. A higher ratio indicates that investors expect strong future growth or believe the company holds a competitive edge in the market. On the other hand, a lower ratio could suggest the company is undervalued or facing challenges.
EV/EBITDA is a go-to metric for evaluating the value a company offers in relation to the profits it generates from its core operations. Because it smooths out differences in debt and accounting practices, it's a great tool for comparing companies and making smarter investment decisions. However, it’s not perfect. It can work well ideally when used alongside other financial metrics, especially while comparing businesses within an industry.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Bajaj Broking Financial Services Ltd. (BFSL) makes no recommendations to buy or sell securities.
Share this article: 
What is GIFT Nifty?
March 25, 2025 | 6 mins read
Advantages and Disadvantages of Sovereign Gold Bond (SGB) Investment
September 27, 2024 | 9 Min. read
Manufacturing Sector in India
September 27, 2023 | 4 Min. read
Forex Market Hours in India – Know the Best Timings
June 16, 2024 | 6 Min. read
How to Avoid LTCG Tax on Mutual Funds?
December 26, 2024 | 6 Min. read
Gold Price In India Today
May 19, 2025 | 5 Min. read
Why Gold Rate is Increasing?
November 29, 2024 | 3 Min. read
No result found
EV/EBITDA is often preferred because it removes the effects of taxes, interest, and accounting decisions. It offers a clearer view of a company’s core performance, especially when comparing companies with different capital structures or in different countries.
A “good” EV/EBITDA ratio depends on the industry, but generally, a range between 6 and 10 is considered reasonable. Lower values may suggest undervaluation, while higher ones could reflect strong growth expectations or potential overvaluation.
Different industries have different average EV/EBITDA ratios. For example, tech and biotech companies often have higher multiples due to growth potential, while capital-intensive sectors like utilities or manufacturing tend to have lower ratios because of slower growth.
Yes, EV/EBITDA can be negative if a company’s EBITDA is negative. This usually signals financial trouble, losses from core operations, or early-stage businesses that haven’t yet become profitable. It’s a red flag for investors to investigate further.
Investors use EV/EBITDA to compare a company’s value with its operating earnings. It helps them judge whether a stock is overvalued or undervalued, especially when comparing it with peers in the same sector or industry benchmark multiples.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
Please Enter Mobile Number
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
TRENDING CALCULATORS AND STOCKS ON BAJAJ BROKING
POPULAR STOCKS: Tata Motors Share Price Infosys Share Price IRFC Share Price SBI Card Share Price Cipla Share Price NBCC Share Price IDFC First Bank Share Price IRCTC Share Price PNB Share Price Vodafone Idea Share Price Axis Bank Share Price JSW Steel Share Price Bandhan Bank Share Price SBI Share Price Tata Steel Share Price ONGC Share Price Ashok Leyland Share Price Paytm Share Price Subex Share Price DLF Share Price Reliance Share Price HDFC Bank Share Price Suzlon Share Price IOC Share Price HUL Share Price Asian Paints Share Price Bank Of Baroda Share Price ITC Share Price TCS Share Price HFCL Share Price Icici Bank Share Price Tata Chemicals Share Price CDSI Share Price MRF Share Price Tata Power Share Price Adani Green share price BPCL Share Price Vedanta Share Price Dmart Share Price Hindalco Share Price LIC Share Price SAIL Share Price Adani Port Share Price IEX Share Price Nalco Share Price L&T Share Price Adani Power Share Price BHEL Share Price Bajaj Finance Share Price Canara Bank Share Price Indusind Bank Share Price Gail Share Price Yes Bank Share Price Wipro Share Price Happiest Minds Share Price Coal India Share Price Maruti Share Price Reliance Power Share Price
INDIAN INDICES: Nifty 50 Share Price SENSEX Share Price Nifty Next 50 Share Price BSE100 Share Price Nifty Bank Share Price LRGCAP Share Price Nifty 100 Share Price MIDCAP Share Price Nifty 200 Share Price SMLCAP Share Price Nifty 500 Share Price BSE500 Share Price Nifty Midcap 50 Share Price ALLCAP Share Price NIFTY SMLCAP 50 Share Price BSE200 Share Price India VIX Share Price BSEIPO Share Price
