What financial ratio is calculated as enterprise value divided by EBITDA?

The financial ratio calculated as enterprise value divided by EBITDA is the EV/EBITDA ratio. It is a valuation multiple that compares the market value of an operating business with earnings before interest, taxes, depreciation and amortization.

Enterprise value broadly represents the value of the whole operating business, including equity and debt while subtracting cash and cash equivalents. EBITDA is used as a pre-interest, pre-tax and pre-depreciation earnings measure, so the multiple is intended to make comparisons less dependent on financing structure and certain accounting choices.

Investors use EV/EBITDA to compare companies, acquisitions and industry valuations. A lower multiple can indicate a cheaper valuation relative to operating earnings, but it is not automatically better: growth, margins, cyclicality, capital needs and debt quality all matter.

The most common confusion is with price-to-earnings. P/E compares equity value with net income, whereas EV/EBITDA includes debt in the numerator and excludes interest and taxes from the earnings measure. EBITDA also omits the cost of replacing aging assets, so the ratio should not be treated as a complete cash-flow measure.