What is EV/EBITDA? Enterprise value to EBITDA explained

EV/EBITDA divides a company's enterprise value, its market capitalization plus debt minus cash, by its EBITDA, earnings before interest, taxes, depreciation and amortization. The result is a ratio that lets investors compare companies regardless of how much debt or cash sits on their balance sheets. It is one of several tools used to size up a business relative to its earnings, alongside other ratios.

How it works

Enterprise value starts with market capitalization, the total value of a company's shares, then adds total debt and subtracts cash. Debt is added because a company that borrows money to run its business carries an obligation that effectively belongs to anyone acquiring the whole firm, not just shareholders; cash is subtracted because that cash could, in principle, be used to pay down that same debt. In our illustration, a company with a $10 billion market cap, $3 billion of debt and $1 billion of cash has an enterprise value of $12 billion.

EBITDA stands for earnings before interest, taxes, depreciation and amortization. It starts from operating profit and adds back depreciation and amortization, the accounting charges that spread the cost of physical equipment and intangible assets over time. Because it sits before interest and taxes, EBITDA leaves out how a company is financed and what it pays in tax, which is exactly why it pairs with enterprise value, a measure that also sits above the capital structure.

Investors use EV/EBITDA to compare companies that carry different amounts of debt. In the illustration, dividing the $12 billion enterprise value by $1.5 billion of EBITDA gives a ratio of 8. Two companies with identical operating earnings but different debt loads would show different price-to-earnings ratios, because interest expense changes net income, but a similar EV/EBITDA, because the measure sits above interest payments entirely.

The ratio has real limits. EBITDA ignores capital spending, so it says nothing about how much cash a company must reinvest in equipment or facilities to keep running. It also ignores taxes and interest, which are real cash costs every company pays. A business can show high EBITDA while spending heavily just to maintain its assets, a cost the ratio never shows.

Typical EV/EBITDA levels also differ by industry. Businesses that need little equipment and grow quickly tend to trade at higher multiples than businesses that require constant heavy spending just to stay in place, so the ratio is most useful when comparing companies within the same kind of business rather than across very different ones.

A worked example with real figures

Apple's enterprise value of $4.98 trillion comes from its $4.96 trillion market cap, plus $84.31 billion of total debt, minus $62.40 billion of cash and short-term investments, all as of June 27, 2026. Dividing that by EBITDA of $168.49 billion over the four quarters to that date gives an EV/EBITDA of 29.5. Chevron's enterprise value of $449.95 billion follows the same steps: a $421.40 billion market cap plus $37.08 billion of total debt minus $8.53 billion of cash and short-term investments, as of June 30, 2026. Divided by its $55.63 billion of EBITDA over the four quarters to that date, Chevron's ratio comes to 8.1.

Set side by side, the two companies show a wide gap: Apple's ratio of 29.5 versus Chevron's 8.1. Apple's enterprise value is roughly eleven times larger than Chevron's, while its EBITDA is only about three times larger, which is what drives the higher multiple. The comparison illustrates how the same measure can produce very different results depending on the business, which is why EV/EBITDA is generally read alongside other figures rather than on its own.