EV/EBITDA compares a company's Enterprise Value to its EBITDA. It's a more comprehensive valuation metric than PE because it accounts for debt and cash.
Company with $5B market cap, $2B debt, $1B cash, and $1B EBITDA. EV = $5B+$2B-$1B = $6B. EV/EBITDA = 6x.
Lower EV/EBITDA may indicate undervaluation. Useful for comparing companies with different capital structures. Average for S&P 500 is around 14-16x.
In early 2025, Verizon (VZ) traded at an EV/EBITDA of ~7x while T-Mobile (TMUS) traded at ~11x. Does that make Verizon cheaper? Not necessarily — T-Mobile has faster subscriber growth and higher margins. EV/EBITDA is a starting point, not a conclusion.
A more actionable comparison: In 2022, Meta Platforms dropped to an EV/EBITDA of ~8x during the tech selloff. For a company generating $40B+ in annual EBITDA, that was historically cheap — and indeed the stock tripled over the next two years.
| Industry | Typical Range | Why |
|---|---|---|
| Telecom | 5–8x | Heavy debt, slow growth |
| Software / SaaS | 20–40x | High growth, recurring revenue |
| Energy / Oil | 4–7x | Cyclical, capital-intensive |
| Healthcare | 12–18x | Stable, moderate growth |
💡 Pro Tip: When analyzing M&A deals, EV/EBITDA is the dominant metric. When a company is acquired, the buyer pays Enterprise Value, not market cap. If a 10x EV/EBITDA company acquires a 6x EV/EBITDA target, the deal is immediately "accretive" — it adds to the acquirer's earnings.
Calculate EV/EBITDA instantly:
Try PE Ratio Calculator →| Industry | Typical EV/EBITDA | Reason |
|---|---|---|
| Technology | 15–25 | High growth expectations |
| Healthcare | 12–20 | Stable demand, R&D premiums |
| Consumer Goods | 10–15 | Predictable cash flows |
| Industrials | 8–12 | Cyclical, capital-intensive |
| Utilities | 6–10 | Regulated, steady returns |
| Financials | 5–10 | Lower growth, regulated capital |
Why is EV/EBITDA better than P/E for comparing companies?
P/E can be distorted by capital structure, tax rates, and depreciation policies. EV/EBITDA strips all that out. Two companies with identical operations but different debt levels will have different P/E ratios but similar EV/EBITDA multiples, making it the fairer comparison tool.
When should I avoid using EV/EBITDA?
Avoid EV/EBITDA for companies with negative EBITDA (they're losing money at the operating level). It's also less useful for banks and insurance companies, whose financial statements work differently. Use P/E or P/B for financials instead.
What's considered a cheap EV/EBITDA?
It depends on the industry. Below 6 is generally considered cheap across most sectors. But a low multiple can also signal fundamental problems — a company might be cheap for a reason. Always investigate why the multiple is low before investing.