Question 1

What is EV/EBITDA?

Accepted Answer

EV/EBITDA (Enterprise Multiple) compares a company's Enterprise Value (market value of equity plus debt minus cash) to its annual Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

Question 2

Why is EV/EBITDA preferred over P/E for capital-intensive companies?

Accepted Answer

EV/EBITDA is capital-structure-neutral and unaffected by differing depreciation policies or debt levels, making it the ideal valuation multiple for comparing companies across manufacturing, telecom, power, and infrastructure.

Question 3

How is Enterprise Value (EV) calculated?

Accepted Answer

Enterprise Value = Market Capitalization + Total Debt + Minority Interest + Preferred Stock - Cash & Cash Equivalents.

Question 4

How do you derive Fair Value Per Share from EV/EBITDA?

Accepted Answer

First calculate Enterprise Value = EBITDA × Target Multiple. Then derive Equity Value = Enterprise Value - Net Debt. Finally, Fair Value per share = Equity Value / Shares Outstanding.

Question 5

What is considered a 'good' or fair EV/EBITDA multiple in India?

Accepted Answer

A multiple below 8x–10x is often considered attractive for industrial/commodity companies, while high-margin growth sectors (consumer tech, branded retail, pharma) trade between 15x and 25x EV/EBITDA.

Question 6

How does Net Debt impact Equity Value in an EV/EBITDA valuation?

Accepted Answer

High net debt directly reduces equity value for shareholders. For a net-cash company (cash > debt), net debt is negative, which increases equity value above enterprise value.

Question 7

What is the difference between EBITDA and Operating Cash Flow?

Accepted Answer

EBITDA does not account for changes in working capital (inventories, receivables) or taxes paid, whereas Operating Cash Flow (OCF) reflects actual cash collected.

Question 8

Can EV/EBITDA be negative?

Accepted Answer

If a company suffers operating losses (negative EBITDA), the EV/EBITDA multiple is negative and cannot be meaningfully interpreted.

Question 9

Why is EV/EBITDA commonly used in Mergers & Acquisitions (M&A)?

Accepted Answer

Acquirers must buy out both equity holders and assume debt obligations. EV/EBITDA reveals the total acquisition price required relative to the target's operating cash generation.

Question 10

Can EV/EBITDA be used for banks and financial institutions?

Accepted Answer

No. For banks and NBFCs, interest is their primary operating cost and debt is their raw material inventory, making EBITDA and Enterprise Value inapplicable. Price-to-Book (P/B) is used instead.

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