What Is EV/EBITDA and When Does It Beat P/E?
EV/EBITDA is a company's enterprise value divided by its EBITDA, earnings before interest, taxes, depreciation and amortization. It prices the whole business, debt included, against its operating profit, so it beats P/E when you compare companies with different amounts of debt.
It misleads when a business spends heavily on equipment, because EBITDA ignores that spending. In its latest fiscal year Amazon put 94% of its operating cash flow into capital spending, which EBITDA never sees.
How is EV/EBITDA calculated?
Enterprise value (EV) is market value plus debt, minus cash. It is what you would pay to own the whole business: the shares, plus the debt you take on, less the cash you get. EBITDA is operating profit with depreciation and amortization added back.
| Piece | Standard definition | Common variants |
|---|---|---|
| Market value | Share price times shares outstanding | Diluted share count |
| Debt | Short-term and long-term borrowings | Add lease liabilities, pension deficits, preferred stock and minority interests |
| Cash | Cash and short-term investments | Subtract only the cash the business does not need to operate |
| EBITDA | Operating income plus depreciation and amortization | “Adjusted” EBITDA, which also adds back stock-based pay and one-off costs |
Because the variants change the answer, two sources can show different EV/EBITDA for the same stock. This site's Comcast value trap post computed about 4.4 times, from $80 billion of equity plus about $80 billion of net debt against annualised third-quarter EBITDA.
When does EV/EBITDA beat P/E?
P/E divides the share price by profit left after interest, so a company with a lot of debt can look cheaper or dearer than it is. EV/EBITDA adds the debt to the price and takes interest out of the profit, so how a company is financed drops out. The numbers below are illustrative, not real companies.
| Illustrative, $ millions | Company A (no debt) | Company B (debt) |
|---|---|---|
| Market value | 1,000 | 400 |
| Net debt | 0 | 600 |
| Enterprise value | 1,000 | 1,000 |
| EBITDA | 200 | 200 |
| Net income (after 6% interest on debt and 25% tax) | 112.5 | 85.5 |
| P/E | 8.9 | 4.7 |
| EV/EBITDA | 5.0 | 5.0 |
Both businesses cost $1,000 million and earn the same operating profit, yet B's P/E is about half of A's. The debt makes B's equity small and risky, not its business cheaper. EV/EBITDA shows the same 5.0 for both. That is the case where it beats P/E: comparing across debt levels, after an acquisition, or between countries with different tax and depreciation rules.
When does EV/EBITDA mislead?
EBITDA is profit before the cost of the equipment a business wears out. For a company that spends little on it, that barely matters; for one that spends a lot, EBITDA flatters. In the latest fiscal year in this site's 10-year financials, capital spending took this share of operating cash flow:
Capital expenditure divided by cash from operations. Fiscal years: Microsoft June 2026, Nvidia January 2026, the others December 2025.
- Heavy capex. Amazon spent $131.8 billion on capex against $139.5 billion of operating cash flow. An EBITDA multiple treats that spending as if it were free.
- Leases. A company that rents its stores or aircraft pays for them through rent, which may or may not be in debt or EBITDA, so lease-heavy firms are not comparable until you treat leases the same way.
- Stock-based pay. “Adjusted” EBITDA often adds it back. Stock-based pay was 65% of Tesla's operating income and 48% of Palantir's in the latest fiscal year, so adding it back changes the picture. See stock-based compensation.
EBITDA is also not cash flow. The measure closer to cash left over is free cash flow yield, and a very low P/E can hide problems too, as in why a low P/E can be an illusion.
How does EV/EBITDA compare with P/E and free cash flow yield?
| Measure | Priced against | Strength | Weak spot |
|---|---|---|---|
| P/E | Net income | Simple, widely quoted (what is a good P/E ratio) | Distorted by debt and one-offs |
| EV/EBITDA | Operating profit before depreciation | Ignores financing and depreciation rules | Ignores capex and leases |
| FCF yield | Cash after capex | Counts the cost of equipment | Lumpy year to year |
Use them together: when two of the three disagree sharply for one company, you have found the part of the business to read about.
EV/EBITDA FAQ
What is a good EV/EBITDA ratio?
There is no universal number, because it varies by industry and by how much capital the business needs. Compare a company with its own history and with close peers, not with a fixed cutoff.
What is the difference between EV/EBITDA and P/E?
P/E compares the price of the shares with profit after interest, depreciation and tax. EV/EBITDA compares the price of the whole business, debt included, with profit before those items, so it is not changed by how a company is financed.
Why is EBITDA criticised?
It leaves out the cost of the equipment a business must keep buying. A company can show a healthy EBITDA and still burn cash if capital spending is large, which is why EBITDA is read next to capex or free cash flow.
Can EV/EBITDA be negative?
Yes, if EBITDA is negative, and the ratio then has no useful meaning. It can also be low or odd for a company that holds more cash than debt, where enterprise value is below market value.
Does this site show EV/EBITDA for every stock?
No. The site's data holds market value, debt and operating income but not depreciation or cash for each stock, so it does not publish a ranking. The worked example in this post is illustrative.
This is educational analysis, not investment advice. Capex, cash flow and stock-based pay figures come from the site's 10-year financials, last refreshed October 23, 2026.