1. What is EV/EBITDA: Let’s Start with a Coffee Chat
Not long ago, a friend leaned across the table and asked me,
“I get PER and PBR, but what is EV/EBITDA? Why do analysts keep talking about it?”
If you’ve ever wondered the same thing, you’re not alone. I remember pausing for a second, then saying,
“Think of PER as looking at earnings through one eye. But what is EV/EBITDA? That’s like opening both eyes — you see the whole picture, including debt and real cash flow.”
That little conversation turned into this post. So let’s break it down together.
👉 Further Reading: WHAT IS PER: Investor’s Guide
2. So, What is EV/EBITDA?
Here’s the straightforward answer:
- EV (Enterprise Value) is the total value of a company. Not just the stock price, but also debt minus cash. Imagine buying the whole company — you’d take on its loans but also get its cash pile.
- EBITDA is basically profit before interest, taxes, depreciation, and amortization. Think of it as the company’s operating cash flow before all the accounting adjustments.
So, when people ask, “what is EV/EBITDA?” they mean:
“How many times is a company’s enterprise value compared to the cash it generates?”
EV/EBITDA = (Enterprise Value) / (EBITDA)
3. Why Do Investors Care?
PER is easy, but net income can be messy — taxes, interest, and accounting tricks distort the number.
That’s why dealmakers prefer EV/EBITDA.
To put it simply: what is EV/EBITDA? It’s a cleaner, fairer way to see how expensive or cheap a company really is.
📌 Reference: Damodaran Online – Valuation Multiples
4. Quick Example (Made Simple)
Let’s say Company A has:
- Market Cap: ₩1 trillion
- Debt: ₩500 billion
- Cash: ₩200 billion
- EBITDA: ₩200 billion
Then EV = 1T + (500B – 200B) = ₩1.3 trillion.
EV/EBITDA = 1.3T ÷ 200B = 6.5x.
So in plain words, the company is valued at 6.5 times its annual cash flow.
5. Real-World Examples
Numbers speak louder than theory, right?
- Netflix (2023)
- EV ≈ $230B
- EBITDA ≈ $6B
- EV/EBITDA ≈ 38x
→ Investors pay a high multiple for growth.
- Korean Air (2023)
- EV ≈ ₩15T
- EBITDA ≈ ₩3T
- EV/EBITDA ≈ 5x
→ Traditional industries tend to be cheaper.
- Samsung Electronics (2023)
- EV ≈ ₩470T
- EBITDA ≈ ₩70T
- EV/EBITDA ≈ 6.7x
→ Pretty much in line with global semiconductor peers.
📌 Sources: Bloomberg, Yahoo Finance, KRX disclosures
6. Industry Benchmarks
This is where context matters. You can’t compare Netflix to an airline.
- Telecom: 4–6x
- Airlines/Shipbuilding: 3–5x
- Semiconductors: 6–10x
- Tech/Software: 15–30x
So if you’re still asking “what is EV/EBITDA?” the answer is: it depends on the industry.
7. How Investors Use It in Practice
- M&A Deals
Private equity firms usually buy companies at 6–8x EV/EBITDA. For example, Hanwha’s acquisition of Daewoo Shipbuilding was discussed in those terms. - Peer Comparisons
Let’s say you’re comparing two telecom companies. One trades at 5x, the other at 9x. Instantly, you see who looks overpriced. - Timing
In low-interest environments, multiples expand. When rates climb, they shrink. EV/EBITDA is especially sensitive to that shift.
📌 Reference: Bloomberg Industry Multiples Report (2023)
8. The Good and the Bad
Pros
- Includes debt → more realistic than PER.
- Cuts through accounting noise.
- Universally used in M&A and IPOs.
Cons
- EBITDA isn’t true free cash flow (CAPEX is missing).
- Net debt definitions vary.
- Industry differences make cross-comparisons risky.
9. Lessons from History
- 2008 Financial Crisis: Airlines dropped below 3x.
- COVID-19 (2020): Airlines and hotels crashed, tech soared to record multiples.
- High-Rate Era (2022–2023): Multiples tightened, and EV/EBITDA fell faster than PER.
10. Final Thoughts
So, what is EV/EBITDA? It’s not just a number. It’s a universal language for investors, bankers, and CEOs.
PER is simple, PBR is asset-heavy, but EV/EBITDA strikes the balance.
If you want to talk about the real price of a company, this is the ratio you can’t ignore.
International Monetary Fund | IMF
What Is Investment? | Beginner’s Guide
12. Q&A
Q1. Is a low EV/EBITDA always good?
→ Not really. It could mean the company is drowning in debt or in a dying sector.
Q2. Should I ditch PER and only use EV/EBITDA?
→ Nope. They work best together. Growth stocks → PER is fine. M&A targets → EV/EBITDA matters more.
Q3. What’s a “normal” multiple?
→ Depends. Telecom: 4–6x, semiconductors: 6–10x, tech: 15–30x.
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