What is EV/EBITDA — and how do you calculate it? The formula step by step

EV/EBITDA values the whole company — not just the stocks. Work out enterprise value (EV) as market capitalization plus net debt, divide by operating profit before depreciation (EBITDA), and you have a valuation multiple that makes companies with different debt loads comparable. A company trading at an EV of SEK 3 billion with EBITDA of SEK 300 million stands at 10× EV/EBITDA.

Why not just P/E? Well — because P/E compares price with earnings after interest and depreciation, which punishes highly leveraged companies and rewards debt-free ones, regardless of how the business is doing. EV/EBITDA lifts the comparison one level up, to the operation itself. Here is how to calculate it, step by step.

Step 1: Enterprise Value — what the whole company costs

EV = Market capitalization + Net debt (+ minority interests)

• Market capitalization = number of stocks × share price. Use every share series (A, B, C) and the fully diluted count if there are convertibles.
• Net debt = interest-bearing debt − liquid funds. These are the liabilities a buyer of the whole company takes over, minus the cash they pocket immediately.
• If the group has minority interests, they are added — they logically belong to the enterprise's value, but not to the shareholders.

Think of EV as the price of a house: you pay the price of the house (market capitalization) and take over the mortgage (the liabilities), but you also get to see what is sitting in the bank account (liquid funds).

Step 2: EBITDA — earnings before the costs of the debt

EBITDA = Operating profit (EBIT) + Depreciation and impairments

All four letters: Earnings Before Interest, Taxes, Depreciation and Amortization. The figures are found in the income statement and the notes to the accounts — operating profit is the intermediate line after the operation's revenue and costs, and depreciation is specified in the notes or the cash flow statement.

The point of adding depreciation back? It is an accounting reflection of historical investments, not a cash expense this year — and different companies depreciate with different aggression. But that is also the valuation multiple's greatest weakness, which we will return to.

Step 3: The worked example

A listed company with 100 million stocks at SEK 20:

• Market capitalization: 100 × 20 = SEK 2 000m
• Interest-bearing debt SEK 600m, liquid funds SEK 200m → net debt SEK 400m (the liabilities taken over, minus cash)
• EV = 2 000 + 400 = SEK 2 400m
• Operating profit SEK 260m, depreciation SEK 140m → EBITDA = SEK 400m
• EV/EBITDA = 2 400 ÷ 400 = 6,0×

Note what happens to P/E in the same example: a highly leveraged company can have a temptingly low P/E (the interest costs eat the profit, but that is invisible in EV/EBITDA) — and vice versa. The multiple you choose determines the question you are asking.

What the multiple actually compares

EV/EBITDA answers: how many years of operating earnings does the whole company cost? It ignores capital structure (good for comparison), tax differences (good across countries) and depreciation policy (good between accounting traditions). That is why it is the standard in acquisition analyses and industry comparisons — sell-side banks almost always calculate in EV/EBITDA.

But that ignoring has a price:

Pitfall 1: EBITDA is not cash flow

Depreciation is not a cash expense this year — but investments are, and depreciation is just investments smeared over time. A company that must reinvest all of EBITDA into machinery and development does not have the free cash the valuation multiple implies. The check: compare EBITDA with cash flow from ongoing operations minus investments (free cash flow). The gap between EBITDA and FCF is the true face of capital intensity.

Pitfall 2: comparisons without an industry

A 6× valuation multiple is cheap for a rock-steady consulting firm and expensive for a cycle-driven engineering company with heavy investment needs. The multiple is a relative number — it means something only against the company's own industry and history. In the Curriculum, the V06 course walks through the comparison group systematically: same industry, same business-cycle phase, same ownership situation.

The exercise: calculate it yourself in 10 minutes

1. Pick a company and note down: every share series × price, interest-bearing debt (the liabilities behind it), liquid funds — the calculator gathers these as a matter of course. 2. Read operating profit and depreciation from the latest financial year — sum up EBITDA. 3. Divide EV by EBITDA. Lay the results for three years side by side: is the multiple rising or falling? 4. Run the same calculation on two industry peers — the calculator does EV/EBITDA with every step automatically.

Next steps

• The V06 course deepens the logic of the valuation multiple: when EV/EBITDA beats P/E and vice versa.
• Tie it together with the balance-sheet side: V10 (debt-to-equity ratio) and V19 (capital burn) show the risk behind the net debt inside EV.
• Gather the whole tool row in the portfolio builder — a valuation multiple is one instrument, not an orchestra.

FAQ

Vad är EV/EBITDA för multipel?

EV/EBITDA står för enterprise value dividerat med rörelseresultatet före räntor, skatt, avskrivningar och nedskrivningar. Multipeln svarar på frågan hur många års rörelseresultat hela bolaget kostar — inklusive skulden — och gör därmed bolag med olika kapitalstruktur jämförbara. Logiken gås igenom steg för steg i V06-kursen.

How do I calculate EV and EBITDA in practice?

EV = börsvärde + nettoskuld (+ minoritetsandelar), där börsvärdet är samtliga aktieserier gånger aktiekursen och nettoskuld är räntebärande skulder minus likvida medel. EBITDA = rörelseresultat plus avskrivningar och nedskrivningar; båda talen finns i resultaträkningen och noterna. Dividera EV med EBITDA så har du multipeln — kalkylatorn gör alla led automatiskt.

When is EV/EBITDA better than P/E?

When comparing companies with different leverage, tax regimes or depreciation policies. P/E compares price with profit after interest and depreciation, which punishes highly indebted companies and rewards debt-free ones regardless of how the business is doing. EV/EBITDA lifts the comparison one level up, to the operation itself.

What is the most common misconception about EV/EBITDA?

That EBITDA would be the same as cash flow. It is not: depreciation is no cash expense this year, but investments are — and depreciation is only investments spread over time. A company that must reinvest its entire EBITDA in machinery and development does not have the free cash the multiple implies. Therefore always compare EBITDA with free cash flow.

This is educational financial analysis, not investment advice.