what is ebitda ev multiple 
the ebitda ev multiple is a financial valuation ratio that measures a company s return on investment roi the ebitda ev ratio may be preferred over other measures of return because it is normalized for differences between companies using ebitda normalizes for differences in capital structure taxation and fixed asset accounting the enterprise value ev also normalizes for differences in a company s capital structure understanding ebitda ev multipleebitda ev is a comparables analysis method that seeks to value similar companies using the same financial metrics while computing the ebitda ev ratio is more complicated than other return measures it is sometimes preferred because it provides a normalized ratio for comparing the operations of different companies if a more conventional ratio such as net income to equity were used comparisons would be skewed by each company s accounting policies an analyst using ebitda ev assumes that a particular ratio is applicable and can be applied to various companies operating within the same line of business or industry in other words the theory is that when firms are comparable this multiples approach can be used to determine the value of one firm based on the value of another thus ebitda ev is commonly used to compare companies within an industry this is a modification of the ratio of operating and non operating profits compared to the market value of a company s equity plus its debt since ebitda is often considered a proxy for cash income the metric is used as a measure of a company s cash return on investment ebitda and ev ebitda is an acronym that stands for earnings before interest taxes depreciation and amortization however the measure is not based on the u s generally accepted accounting principles gaap in april 2016 the securities and exchange commission sec stated non gaap measures such as ebitda would be a focal point for the agency to ensure that companies are not presenting results in a misleading manner if ebitda is shown the sec advises that the company should reconcile the metric to net income this should assist investors by providing information on how the figure is calculated enterprise value ev is a measure of the economic value of a company it is frequently used to determine the value of the business if it is acquired it is considered to be a better valuation measure than market capitalization since the latter factors in only a business equity without regard to the debt ev is calculated as the market capitalization plus debt preferred stock and minority interest minus cash an entity purchasing a company would have to pay the value of the equity and assume the debt but the money would reduce the price paid example of ebitda evthe ebitda ev uses the cash flows of a business to evaluate the value of a company when the ebitda is compared to enterprise revenue an investor can tell if a business has cash flow issues a business with a healthy cash flow will have a high value banks also look at ebitda since it is an indicator of the capacity of the enterprise to pay the debt service and repay the principal of any new debt incurred for example wal mart inc s ebitda for the fiscal year 2020 was 31 55 billion its enterprise value was 445 77 billion during this period this works out to an ebitda ev multiple of 0 07077 or 7 08 the reciprocate multiple ev ebitda is used to measure the value of a company 