Enterprise value/EBITDA ratio (EV/E)

Definition:

The EV/EBITDA ratio, also known as the enterprise multiple, is the ratio of a company's enterprise value to its earnings before non-cash items and is commonly used to value possible takeover targets. Although similar to the P/E ratio, there are two aspects of the EV/E ratio that make it a more accurate measurement of a company's true value: the inclusion of EBITDA in the ratio allows for a comparison of earnings between different industries by omitting the effects of interest and taxes on earnings, which vary between industries; the enterprise value, on the other hand, uses net debt in its calculation, which allows for the EV/E ratio to be used to compare companies with different capitalization structures. See: EBITDA, Enterprise multiple, Takeover

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

House call

Notification by a brokerage house that a customer's margin account is below the minimum maintenance level. The client must provide more cash or equity, or the account will be liquidated.

Subscribe to the Term of the Day via email Get the Term of the Day in your inbox!


Create your free portfolio