Enterprise Value to EBITDA

EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It is a measure of a company’s earnings before they are subjected to non cash costs such as Depreciation and Amortisation and before the cost of Interest and Tax, which are not related directly to operational performance. EV/EBITDA is similar to - and often used in conjunction with - the PE Ratio to value a company but is arguably a better ratio for comparable multiples analysis.

This is because EV is capital structure-neutral in that it includes debt. Furthermore, EBITDA measures cash earnings without accrual accounting, cancelling tax-jurisdiction effects, and cancelling the effects of different capital structures.

It is purely driven by the business operations of the company whereas the PE multiple can be impacted by non-business factors of a discretionary or non-recurring nature. This is measured on a TTM basis.