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EBITDA multiple.

Aka. EV/EBITDA · Enterprise multiple
All terms

What is an EBITDA multiple?

An EBITDA multiple — written EV/EBITDA — is enterprise value divided by EBITDA. It expresses a company's price as a count of its operating-earnings years: a business bought at 8.0x is priced at eight times what it earns before interest, taxes, depreciation, and amortization.

It is the dominant valuation shorthand in private markets and leveraged buyouts. Because the numerator is enterprise value — equity plus net debt — and the denominator is pre-financing earnings, the multiple is independent of how the business is currently capitalized. That neutrality is exactly what a buyer who intends to replace the existing debt with their own financing needs.

The multiple is also the language of deal pricing. Sellers and buyers negotiate in turns of EBITDA, comparable transactions are quoted in multiples, and lenders size debt as a multiple of EBITDA. It compresses an entire valuation into one comparable number.

How an EBITDA multiple is constructed and read

Getting the numerator and denominator consistent is where most errors hide.

  1. Use enterprise value, not equity value. EV is market equity plus debt, minus cash. Pairing EBITDA with equity value instead of EV is a frequent and serious mistake, because EBITDA is available to all capital providers.
  2. Match the EBITDA definition. Decide whether the denominator is reported, LTM, forward, or adjusted EBITDA — and compare only multiples built on the same basis.
  3. Read it as an inverse yield. A higher multiple means a higher price per dollar of earnings — and, all else equal, a lower implied return. An 8.0x multiple is a richer price than 6.0x.
  4. Interpret with growth and quality in mind. Faster-growing, higher-margin, more durable businesses command higher multiples. The multiple alone says nothing without the quality of the earnings behind it.

What drives the multiple

Two businesses with identical EBITDA can trade at very different multiples. Growth is the largest driver — buyers pay more for earnings that will compound. Margin durability, customer concentration, recurring versus one-time revenue, sector dynamics, and the scarcity of the asset all move it.

Leverage availability matters too: when debt is cheap and plentiful, buyers can pay higher multiples while still hitting their return targets, and multiples across the market expand. The EBITDA multiple is best understood not as a fixed property of a company but as a market-clearing price that reflects both the asset's quality and the financing environment around it.

Frequently asked.

4 questions
01 Why use enterprise value rather than equity value in the multiple?

Because EBITDA is earnings before interest — it is the pool available to all providers of capital, both debt and equity. Enterprise value is the corresponding measure of the total value of the business across that whole capital structure, so EV and EBITDA are the consistent pairing.

Dividing equity value by EBITDA mixes a part-of-the-capital-structure numerator with a whole-business denominator, producing a number that means nothing.

02 What is a typical EBITDA multiple?

There is no single typical figure — multiples vary widely by sector, size, growth, and the financing environment. Stable, slow-growing businesses trade at lower multiples; high-growth or scarce assets trade much higher. Quoting a benchmark without that context is misleading.

The right comparison is always against transactions for similar businesses in similar conditions, on the same EBITDA basis.

03 How does an EBITDA multiple relate to a revenue multiple?

A revenue multiple divides EV by revenue and ignores profitability; an EBITDA multiple divides by operating earnings. Revenue multiples are used when a business has little or negative EBITDA — common in early-stage software — while EBITDA multiples apply once a business is reliably profitable.

The two are linked by margin: EBITDA multiple equals revenue multiple divided by EBITDA margin.

04 Does a higher EBITDA multiple mean a better company?

Not necessarily — it means a more expensive one. A high multiple reflects the market's expectation of growth and durability, which can be justified or not. A high multiple paid for earnings that don't grow as expected is simply overpayment.

The multiple is only meaningful alongside the quality and growth of the EBITDA underneath it.

Related terms

Cvaluation

Comparable company analysis

Valuing a business by the multiples its publicly traded peers trade at — a <em>relative</em> valuation that prices a company against the market, not its cash flows.

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Evaluation

Exit multiple

The valuation multiple a business is sold at on exit — the assumption that, set against the entry multiple, drives much of a deal's <em>projected return</em>.

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Evaluation

EBITDA

Earnings before interest, taxes, depreciation, and amortization — a proxy for <em>operating profitability</em> stripped of capital structure and accounting choices.

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Gvaluation

Goodwill

The premium a buyer pays above the fair value of a target's identifiable net assets — booked as an asset and tested for <em>impairment</em>, not amortized.

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Avaluation

Adjusted EBITDA

EBITDA recast to a sustainable run-rate by adding back <em>one-time, non-recurring, and owner-specific items</em> — the EBITDA most deals are priced on.

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Avaluation

ARR multiple

Enterprise value divided by <em>annual recurring revenue</em> — the headline multiple for subscription software, where ARR is the durable revenue base.

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