EV/EBITDA
Definition
EV/EBITDA compares a company’s total value, including its debt, to the raw operating profit it produces. It answers: “for every dollar of operating earnings, how many dollars does it cost to buy the whole business?” A lower multiple generally means cheaper; a higher one means the market expects more growth.
The formula
and EBITDA = earnings before interest, taxes, depreciation & amortization.
How Tenet calculates it
Where a company files quarterly statements and its trailing figure passes our check against the filings, Tenet uses EBITDA summed over the last four reported quarters, with cash and total debt from the most recent quarter’s balance sheet. For now, EV/EBITDA is on the latest fiscal year in every sector, pending the trailing check: EBITDA from that year, with cash and total debt from the same year’s balance sheet. The Statistics row names the period. Either way, the enterprise value is real-time and updates with the share price. Where a company reports unusual items, we use reported EBITDA rather than an adjusted figure, and we note it on the stock report. A forward variant, EV/forward-EBITDA, uses consensus analyst estimates instead of trailing profit.
A worked example
Read as “ten times”: it would take about ten years of today’s operating profit to pay back the cost of the entire business, before tax and reinvestment.
When it beats the P/E ratio
Because EV includes debt and EBITDA is measured before interest, EV/EBITDA lets you compare two companies with very different debt loads or tax situations on a level field, something the P/E ratio can’t do. It’s the go-to multiple for capital-intensive industries and for comparing potential acquisition targets. Its blind spot: by ignoring depreciation, it can flatter businesses that must constantly spend to replace equipment, so it’s weaker for asset-heavy firms where capex really matters.