EV/EBITDA Multiple

EV/EBITDA pairs an enterprise-level value measure (EV) with an enterprise-level income measure (EBITDA). This consistency is critical — you cannot pair market cap (equity measure) with EBITDA (pre-debt measure) or EV with net income (post-debt measure). Because EBITDA strips out capital structure (interest), tax differences, and non-cash charges (D&A), it allows for cleaner comparison across companies. A company trading at 8x EV/EBITDA is 'cheaper' than one at 12x, all else equal.

Technology: 15–25x+ (high growth, recurring revenue). Healthcare: 12–18x (stable demand, regulatory moats). Consumer Staples: 10–14x (predictable, defensive). Industrials: 8–12x (cyclical, capital-intensive). Energy: 5–8x (commodity exposure, volatility). Financial Services: EV/EBITDA is generally not used — P/E or P/BV is standard. These ranges shift with market conditions: in a bull market, multiples expand; in a downturn, they contract. Always use current trading comparables, not historical averages.

EV/EBITDA can be calculated on trailing twelve months (LTM) or forward (NTM) EBITDA. Forward multiples are preferred because investors pay for future earnings. A company trading at 12x LTM EBITDA but 10x NTM EBITDA is expected to grow. The difference between LTM and NTM multiples reflects the market's growth expectations. In M&A, bankers typically present both and use NTM for valuation ranges.

EV/EBITDA ignores CapEx requirements — a company spending 30% of EBITDA on maintenance CapEx is less attractive than one spending 10%. It also ignores working capital intensity and stock-based compensation. For capital-intensive industries, EV/EBIT or EV/(EBITDA - CapEx) may be more appropriate. Despite these limitations, EV/EBITDA remains the go-to multiple because it is easy to calculate, widely available, and provides a reasonable first approximation across most industries.