Module 4 ยท Valuation and Ratios
Enterprise value to EBITDA values the whole business, debt included, against operating earnings.
EV/EBITDA values the entire company - equity plus debt minus cash - against its operating earnings (EBITDA). It is popular for comparing companies with different debt levels.
Because it includes debt, it is fairer than P/E for capital-intensive businesses like telecom, steel or infrastructure.
A lower EV/EBITDA can mean a cheaper business, but always check why - it may be cheap for a good reason.
Example: Bharti Airtel
Airtel carries significant debt, so its P/E can look distorted. EV/EBITDA, which includes that debt, gives a clearer view of how the market prices the whole business.
EV (enterprise value) includes:
Why would a telecom company's P/E be misleading without considering its debt?