EV/EBITDA

Enterprise Value to EBITDA (EV/EBITDA) is the ratio of a companys total enterprise value (market cap + debt - cash) to its earnings before interest, tax, depreciation and amortisation. It is a capital-structure-neutral valuation multiple.

Formula: EV/EBITDA = (Market Cap + Total Debt - Cash and Equivalents) / EBITDA.

Example: Reliance Industries with market cap Rs 18,00,000 cr, debt Rs 3,00,000 cr, cash Rs 2,00,000 cr and EBITDA Rs 1,60,000 cr has EV = Rs 19,00,000 cr, so EV/EBITDA = approximately 11.9x.

When to use: Comparing companies with different leverage or tax regimes, cross-border peers, M&A pricing, capital-heavy sectors (telecom, infra, cement, steel) where depreciation distorts P/E.

When NOT to use: Banks and financials (interest is the core revenue, not a financing cost). Also unreliable when EBITDA is negative or when D&A masks heavy maintenance capex.

Caveat: Past performance is not indicative of future returns. EBITDA is not cash flow — Buffett famously calls it "earnings before the bad stuff".

Related terms: P/E Ratio, P/B Ratio, Enterprise Value (EV).