EV/EBITDA

EV/EBITDA compares enterprise value — market cap plus net debt — to earnings before interest, taxes, depreciation, and amortization, valuing the whole business rather than just its equity. Because both sides are capital-structure neutral, it lets you compare a debt-heavy company against a debt-free one, which P/E cannot do: interest expense distorts the E while debt is invisible in the P.

It is the default multiple in M&A and private equity, where the buyer assumes the debt and cares about the total price of the operations. Broad U.S. market averages have historically run around 10-13x, with slow industrials in the single digits and high-growth software far above.

The known blind spot: EBITDA ignores capital expenditures. Two companies at 8x EV/EBITDA are not equally cheap if one must reinvest half its EBITDA in machinery just to stand still. For capex-heavy sectors — telecom, airlines, shipping — cross-check with EV/EBIT or free cash flow, or the multiple will flatter exactly the wrong businesses.