EV/EBITDA
EV/EBITDA compares the value of a whole business, including its debt, with its operating earnings before accounting charges. Professionals use it to compare companies with very different debt levels. Here is what goes into it and how to read it.
Enterprise value
Market value only counts the shares. Enterprise value (EV) is what it would cost to buy the whole business: market value plus debt, minus cash. If two companies both have a $50 billion market value but one owes $30 billion, that one is really more expensive to buy.
| Company A | Company B | |
|---|---|---|
| Market value | $50B | $50B |
| + Debt | $0B | $30B |
| − Cash | $10B | $5B |
| = Enterprise value | $40B | $75B |
Same market value, very different enterprise values.
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