EV/EBITDA: Meaning, Formula & What Is a Good Ratio

EV/EBITDA (Enterprise Value to EBITDA) is widely considered the most complete valuation multiple in fundamental analysis. Unlike P/E, which only values the equity slice, EV/EBITDA values the entire enterprise — debt plus equity, minus excess cash — relative to operating earnings before non-cash charges. This makes it the preferred metric for comparing companies with different debt levels, tax rates, and depreciation policies.

An EV/EBITDA of 10x means the total business costs ten times its annual operating cash earnings. Lower multiples = cheaper valuation. The metric dominates M&A analysis (buyers acquire the whole business, not just equity) and professional equity research. It works across almost all industries except financials (where EBITDA isn't meaningful). When a Wall Street analyst calls a stock "cheap" or "expensive," EV/EBITDA is often the primary reference.

Enterprise Value (EV) = Market Cap + Total Debt + Minority Interests − Cash & Equivalents. It represents the theoretical takeover price: what you'd pay for the shares plus what you'd assume in debt minus what you'd receive in cash.

EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization. It's operating profit with non-cash charges added back. By comparing total acquisition cost to operating cash earnings, EV/EBITDA provides a capital-structure-neutral valuation. Two companies with identical operations but different debt levels show different P/E ratios but similar EV/EBITDA — exactly why this metric is preferred.

There's no universal "good" EV/EBITDA — it depends entirely on sector and growth profile:

Below 8x: Generally cheap across most sectors. Often found in energy, utilities, and mature industrials.

8–12x: Moderate. Fair value range for slow-to-moderate growth companies.

12–20x: Above average. Typical for quality companies with steady growth.

Above 20x: Growth premium. Common in technology and healthcare where investors price in future expansion.

The most meaningful comparison is always relative to sector peers: a tech company at 15x in a sector where the median is 25x is actually cheap, while a utility at 15x where the median is 9x is expensive. This is exactly how UQS evaluates it — against the sector median, not universal thresholds.

Industry-typical EV/EBITDA ranges reflect structural differences in growth, capital intensity, and risk:

Software/SaaS: 20–35x. Recurring revenue, high margins, strong growth visibility.

Technology Hardware: 15–25x. Cyclical but high margins with innovation premiums.

Healthcare/Pharma: 12–20x. Patent-protected revenue streams, moderate growth.

Consumer Discretionary: 10–18x. Brand-dependent, cyclical demand.

Industrials: 8–14x. Capital-intensive, GDP-correlated growth.

Energy/Utilities: 6–12x. Regulated or commodity-linked, slow growth.

The S&P 500 aggregate EV/EBITDA typically ranges from 12–16x. Individual stocks trading significantly below their sector median may represent value opportunities — the best value stocks ranking surfaces these systematically.

EV/EBITDA carries 20% weight in the Valuation pillar, uniquely evaluated against the sector median rather than absolute thresholds. A company at 8x in a sector where the median is 12x scores well (33% discount). One at 20x where the median is 10x scores poorly (100% premium).

This sector-relative approach prevents the absurd conclusion that all utilities are "cheap" and all tech stocks are "expensive." It pairs with three absolute-threshold metrics: earnings yield (30%), P/FCF (25%), and PEG (25%). For financial companies, EBITDA is null, so the 20% weight redistributes. Read the full UQS methodology →