What Is Enterprise Value to EBITDA?

Enterprise Value to EBITDA (EV/EBITDA) expresses how many times operating earnings a buyer pays for the business—central in PE and mature M&A, less common for pre-profit startups.

How it works

Formula: EV/EBITDA = Enterprise Value ÷ EBITDA

Use trailing twelve-month or forward EBITDA depending on deal norms. A business with $80M EV and $10M EBITDA trades at 8×. Comparing multiples across peers requires consistent adjusted EBITDA definitions—buyers strip one-time items differently.

Public comps screens show median EV/EBITDA by sector; acquirers apply premiums for growth, market position, or synergies, discounts for customer concentration or integration risk.

Venture companies with negative EBITDA use EV/revenue or growth-adjusted metrics until profitability. Crossover rounds may cite “path to 15× EV/EBITDA at scale” as investor framing—not a current transaction price.

Why it matters

• Founders: When strategic buyers or PE knock, ask whether they underwrite on revenue or EBITDA multiple. Improve EBITDA before sale if buyer universe is PE-heavy.
• Investors: Growth equity compares EV/EBITDA entry vs exit in hold models—entry multiple vs exit multiple drives returns.
• Lenders: Leverage ratios tie debt to EBITDA; higher EV/EBITDA exit assumptions support more debt in LBO models.

Common mistake

Applying public-company EV/EBITDA multiples to a private startup with 80% growth and negative EBITDA. Multiples are not transferable across life stages without adjustment—or a different metric entirely.

Related ideas

• Enterprise Value — numerator
• EBITDA — denominator
• Entry Multiple — price paid at investment
• EV/revenue — alternative for high-growth firms