What is EV/EBITDA? — formula, interpretation and scoring scale

EV/EBITDA compares a company's enterprise value with its EBITDA — the operating profit before depreciation, impairments, interest rate and tax. The formula: EV/EBITDA = (market capitalization + interest-bearing debt − cash) ÷ EBITDA. The multiple measures what the whole company costs — liabilities included — in relation to what it earns. Numerator with debt. Denominator before depreciation. The entire capital structure is visible. That is why EV/EBITDA is the valuation multiple that best compares companies with different debt loads — in AKM1 it is called V06.

The formula

EV = Market capitalization + Interest-bearing debt (liabilities) − Cash and cash equivalents

EBITDA = Operating profit (EBIT) + Depreciation and impairments

EV/EBITDA = EV ÷ EBITDA

Worked example: market capitalization 100 mdr SEK, interest-bearing debt 40 — the liabilities a buyer takes over — cash 10. The enterprise value becomes 130. EBITDA 13 gives a valuation multiple of 10x. A buyer of the whole company pays ten years of daily operating surplus — before tax, interest rate and depreciation.

The difference from P/E

P/E divides market capitalization by net profit. That is enough when the companies are equally indebted. It stops working when they are not. Two companies, same profit, same P/E — but one carries double the debt. The interest cost follows with the purchase, which P/E never sees. EV/EBITDA sees it, in the numerator. The valuation multiple is also unaffected by depreciation practice and tax differences between countries — two accounting choices that distort P/E. That is why buyers of whole companies — on the institutional side — speak in EV/EBITDA.

Two companies, same profit — different price

Put numbers on it. Company A: market capitalization 100, no debt, EBITDA 10 — EV becomes 100 and the valuation multiple 10x. Company B: market capitalization 100, interest-bearing debt 60, cash 10, same EBITDA 10 — EV becomes 150 and the valuation multiple 15x. The result after interest can still look almost identical, and P/E barely separates them. But the buyer of company B pays 50 % more per krona of operating profit. Is that visible in P/E? Hardly. In EV/EBITDA? Immediately. That is the whole difference between pricing the stock and pricing the company.

How EV/EBITDA is scored in AKM1 (V06)

AKM1 scores each variable 0–5. V06 follows a convex curve with a special hole for value traps:

• Negative EBITDA ⇒ 0 points — no valuation multiple is meaningful without positive operating profit
• Above 20x ⇒ 1 point
• 14–20x ⇒ 2 points
• 10–14x ⇒ 3 points
• 6–10x ⇒ 4 points
• 4–6x ⇒ 5 points
• Below 4x ⇒ 5 points only if cash coverage (V19) also holds at least 3 points — otherwise maximum 3 points. Cheap for a reason is not cheap.

The hole below 4x is the curve's most important part. A valuation multiple that looks like a gift is often a warning: the market is pricing a risk you have not yet seen. That is why the top grade requires a second proof — that the cash will last long enough for the company to justify the price.

An accounting key, written out plainly: when EBITDA is missing in the data basis the library uses EV/EBIT as a conservative proxy. EBITDA is always at least as large as EBIT, so the true EV/EBITDA valuation multiple is always lower than or equal to the proxy — the proxy thus overstates the price, which is the conservative direction. In the latest measurements: Investor EV/EBIT 4,6x ⇒ 5/5, Truecaller 16,6x ⇒ 2/5, Microsoft EV/EBIT 25,0x ⇒ 1/5. Every score carries its motivation in the analysis.

When the valuation multiple fails

EV/EBITDA has three known blind spots, and honesty requires that they be written out:

• Cyclical companies at the top. EBITDA is at its highest just before the downturn — the valuation multiple looks low exactly when the risk is greatest. Compare through the cycle, not at a single year.
• Capital-intensive companies. Depreciation is a real cost for a factory that must be rebuilt. EBITDA looks too good for such companies — again: compare within the industry.
• Growing accounts receivable. EBITDA is not cash. If revenue is booked but the money is delayed, the valuation multiple can look steady while liquidity crumbles. Check the cash flow alongside.

A valuation multiple is a tool with limits — like all tools in the library. That is why V06 is never scored alone: the valuation points are read together with profitability, debt and cash coverage.

Common mistakes

• Forgetting net debt. EV/EBITDA compared with P/E is apples and oranges. One includes the debt, the other does not. Never mix them in the same comparison.
• Trusting the company's adjusted EBITDA. Adjusted figures strip out what went wrong — sometimes for good reasons, sometimes not. Feel free to compute it yourself from operating profit plus depreciation.
• Comparing capital-intensive companies with software companies. Depreciation is a real cost for the factory, less so for the licence. Compare the valuation multiple within the industry, never across it.
• Forgetting IFRS 16. Leased assets have sat in the debt since 2019. Older multiple history and new figures do not measure the same thing.
• Reading the multiple without the company. 8x says nothing about whether growth is −5 % or +15 %. A valuation multiple is a question, not an answer.

Go deeper

• The course EV/EBITDA — Valuation: the valuation multiple step by step, with practice calculations and the cases that show when it fails.
• What is ROE? — the profitability side of the same valuation.
• The calculator computes EV/EBITDA on your own numbers — the formulas are the same as in the course.

The falsification

If companies with a steadily lower EV/EBITDA than their sector did not show higher future total return — followed across full business cycles, not quarters — the valuation multiple lacks explanatory power. The library's analyses log that question openly per company.

FAQ

What does EV/EBITDA mean in simple terms?

Multipeln jämför vad hela bolaget kostar att köpa — börsvärde plus räntebärande skulder minus kassa (företagsvärdet, EV) — med rörelseresultatet före avskrivningar, ränta och skatt (EBITDA). En multipel på 10x betyder att en köpare av hela bolaget betalar tio års driftsöverskott. I AKM1-modellen är detta variabel V06, och kursen EV/EBITDA — Värdering går igenom den steg för steg.

What is the difference from P/E?

P/E delar börsvärdet med nettoresultatet och ser aldrig skulden. EV/EBITDA lägger räntebärande skulder i täljaren och drar ifrån kassan, så två bolag med samma vinst men olika skuldsättning får olika multipel. EV/EBITDA påverkas heller inte av avskrivningspraxis eller skatteskillnader mellan länder — två redovisningsval som snedvrider P/E.

Vad räknas som en bra EV/EBITDA-multipel?

I AKM1:s poängskala ger 4–6x högsta poängen, 6–10x näst högst och över 20x lägst — men inget tal är bra eller dåligt i sig. Multipler under 4x kräver ett andra bevis: att kassatäckningen (V19) håller minst 3 poäng, eftersom en till synes billig aktie ofta prissätter en dold risk. Jämför alltid inom samma bransch och genom hela konjunkturcykeln.

What are the multiple's weaknesses?

Tre kända blindspots: cykliska bolag ser billigast ut precis före nedgången när EBITDA är som högst, kapitalintensiva bolag ser för bra ut eftersom avskrivningar är en verklig kostnad för en fabrik, och växande kundfordringar kan låta intäkter bokföras medan kassan dröjer. Därför läses V06 alltid tillsammans med kassaflöde, skuld och lönsamhet — aldrig ensam.

Educational analysis — not investment advice.