Enterprise Value/EBITDA

Enterprise Value/EBITDA measures the value of a company and is often used in conjunction with, or as an alternative to, the P/E ratio (Price/Earnings ratio) to determine the fair market value of a company. Like the P/E ratio, the EV / EBITDA ratio is a measure of how expensive a stock is. It measures the price (in the form of enterprise value) an investor pays for the benefit of the company’s cash flow (in the form of EBITDA).Unlike P/E ratios, however, EV / EBITDA ratios can be used to compare a wide variety of companies.

Enterprise Value/EBITDA is used by stock market investors to compare returns between equivalent companies on a risk-adjusted basis.

EV/EBITDA values can vary depending on how EBITDA is calculated. EBITDA can vary due to differences in acounting of depreciation and amortization which can be acounted at different rates over time.

Example: Google’s Enterprise Value/EBITDA is 11.41 (TTM)

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