--- title: "EV/EBITDA Multiple | Altss Glossary" description: "The enterprise value to EBITDA multiple (EV/EBITDA) is enterprise value divided by earnings before interest, taxes, depreciation and amortisation…" canonical: "https://altss.com/glossary/ev-ebitda-multiple" --- Glossary · Valuation # EV/EBITDA Multiple The enterprise value to EBITDA multiple (EV/EBITDA) is enterprise value divided by earnings before interest, taxes, depreciation and amortisation (EBITDA); it expresses a business's value as a multiple of its operating earnings and is commonly used to price buyouts. Publisher: Altss LLCContent modified 2026-10-01 ALTSS-VAL-017 A business bought at 10x EBITDA costs ten times one year of its operating earnings. Because enterprise value and EBITDA are both measured before the effects of borrowing, the ratio lets investors compare businesses with different amounts of debt, and lets lenders and buyers talk about price and leverage in the same units. ## Formula ### EV/EBITDA ``` EV/EBITDA = enterprise value / EBITDA ``` `EV` enterprise value: equity value plus debt and other senior claims, minus cash `EBITDA` earnings before interest, taxes, depreciation and amortisation for a stated period (LTM, current year or NTM), reported or adjusted State the period, whether LTM, next twelve months (NTM) or run-rate, and the EBITDA definition (reported, adjusted, pro forma for acquisitions). Lease treatment must match on both sides: if lease costs are excluded from EBITDA, EV should include lease liabilities. Covenant EBITDA in credit agreements often has its own add-backs. ## Why enterprise value and EBITDA Both sides of the ratio are measured before financing, so the multiple compares businesses regardless of how much debt each carries. EBITDA is also a rough proxy for operating cash before capital spending and tax. The IPEV Valuation Guidelines note that EBITDA multiples are commonly used where available, but warn that they remove depreciation and amortisation, so they can hide the real cost of heavy capital spending or of growth by acquisition. For capital-intensive businesses, analysts also look at EV/EBIT or EV/(EBITDA − capex). ## Entry, exit, trading and transaction multiples The entry multiple is the purchase enterprise value over EBITDA at acquisition; the exit multiple is the same ratio at sale. Trading multiples come from listed peers ([comparable company analysis](https://altss.com/glossary/comparable-company-analysis)); transaction multiples from acquisitions of whole companies (precedent transactions), which include control. In fair value marks the entry multiple is calibrated against peers' trading multiples at the same date, and the relationship is carried forward with judgement. ## Adjusted EBITDA Deal multiples are usually quoted on adjusted EBITDA: reported EBITDA plus add-backs for one-off costs, run-rate savings and acquisitions made during the period. Two multiples are comparable only if their EBITDA definitions match. Aggressive add-backs make a purchase look cheaper and leverage lower than they are. The IPEV Guidelines expect valuers to use maintainable earnings, adjusted for exceptional items and pro forma for acquisitions and disposals, and to make the same adjustments to the comparables. ## Multiples in leverage and credit Lenders size loans in the same unit ([debt-to-EBITDA](https://altss.com/glossary/debt-to-ebitda)). The difference between the purchase multiple and the leverage multiple is the equity contribution in turns of EBITDA, and the ratio of the two approximates [loan-to-value](https://altss.com/glossary/loan-to-value) at the enterprise level. A covenant EBITDA with generous add-backs can make the same debt look less risky than it is. ## Reading a multiple A multiple is high or low only relative to growth, margins, capital intensity, risk, interest rates and sector. A software business and a distributor with the same EBITDA can rationally trade at very different multiples. In performance analysis, multiple expansion between entry and exit is a market effect as much as a manager's achievement; value bridge analysis separates it from earnings growth and debt paydown. ## Worked examples ### Illustrative purchase: from multiple to equity cheque ($ millions) A sponsor agrees to buy a company at 10.5x last-twelve-months (LTM) adjusted EBITDA of $40m: an enterprise value of $420m. Acquisition debt is $180m (4.5x EBITDA) and $15m of cash stays in the business. Equity value at closing is 420 − 180 + 15 = **$255m**, before fees and expenses. ### Leverage as a share of the purchase multiple Debt of 4.5x EBITDA against a purchase multiple of 10.5x means lenders fund **42.9%** of enterprise value, before allowing for cash. Lenders read the gap between the two multiples as the equity cushion beneath their loans. ### Earnings growth versus multiple expansion Five years later EBITDA is $55m and the company sells at 11.0x: enterprise value $605m, up $185m. At the entry multiple, EBITDA growth accounts for (55 − 40) × 10.5 = **$157.5m**. The rise in the multiple, applied to exit EBITDA, accounts for (11.0 − 10.5) × 55 = **$27.5m**. Debt paydown, the third part of an equity value bridge, is left aside here. Value bridges split these effects in different orders, and the split changes with the order chosen, so the method should be stated. Examples are illustrative; figures are not market data. ## Not the same as - [Debt-to-EBITDA (Leverage Multiple)](https://altss.com/glossary/debt-to-ebitda): Debt-to-EBITDA measures leverage; EV/EBITDA measures value. Both use EBITDA as the denominator. - Revenue Multiple: Revenue multiples are used where earnings are negative or not yet representative; EV/EBITDA requires meaningful positive EBITDA. - [Enterprise Value (EV)](https://altss.com/glossary/enterprise-value): Enterprise value is the numerator; the multiple relates it to an earnings measure. ## Common mistakes - Comparing a multiple on adjusted EBITDA with one on reported EBITDA. - Mixing LTM and forward EBITDA across a peer set or between entry and exit. - Leaving lease liabilities out of EV while using an EBITDA that excludes lease costs. - Treating multiple expansion as evidence of operating value creation. - Using EV/EBITDA for capital-intensive businesses without looking at capex. - Applying a peak-cycle EBITDA to a mid-cycle multiple. ## Edge cases - Negative or near-zero EBITDA makes the multiple meaningless or extreme; use revenue or other measures. - A business that made large acquisitions during the year needs pro forma EBITDA, or the multiple overstates the price. - Holding companies and conglomerates may need a separate multiple for each segment. ## Questions ### What is a good EV/EBITDA multiple? There is no universal level. Multiples differ by sector, growth, margins, capital intensity and the interest-rate environment; compare a company with relevant peers on the same EBITDA definition and period. ### What is the difference between an entry and an exit multiple? The entry multiple is the EV/EBITDA paid at acquisition; the exit multiple is the EV/EBITDA received at sale. The change between them, multiplied by exit EBITDA, is the multiple expansion (or contraction) component of returns. ## Sources - [International Private Equity and Venture Capital Valuation Guidelines (2025 edition)](https://www.privateequityvaluation.com/Portals/0/Documents/Guidelines/2025%20IPEV%20Valuation%20Guidelines.pdf). IPEV Board, IPEV, Published 11 December 2025; in effect for quarterly reporting periods beginning on or after 1 April 2026; early adoption encouraged. Status: Current; supersedes the December 2022 edition (checked 2026-10-01). Section I 3.4 (use of earnings multiples; EBITDA multiples and depreciation/amortisation; maintainable earnings; acquisition vs trading multiples); 2.6 — supports: EBITDA multiples commonly used; caution on D&A and capex; maintainable and pro forma earnings; calibration of entry multiples ## Related terms 4 terms - [Enterprise Value (EV)](https://altss.com/glossary/enterprise-value) - [Comparable Company Analysis (Trading Comps)](https://altss.com/glossary/comparable-company-analysis) - [Debt-to-EBITDA (Leverage Multiple)](https://altss.com/glossary/debt-to-ebitda) - [Leveraged Buyout (LBO)](https://altss.com/glossary/leveraged-buyout) ## Concept record Concept ID ALTSS-VAL-017 Classification Valuation · Underwriting metric Topics Valuation · Private equity Version 2.0.0 Last reviewed 2026-10-01 Structured data [JSON](https://altss.com/reference/concepts/ev-ebitda-multiple.json) ## Canonical URL https://altss.com/glossary/ev-ebitda-multiple