Lesson 3 of 8
Enterprise Value & EV/EBITDA
How professionals actually value companies
P/E ratio is popular but flawed. It's affected by taxes, debt, and accounting tricks. EV/EBITDA strips all that away and compares what a company actually earns from operations to what it would cost to buy the whole thing.
EV/EBITDA across real companies
NVIDIA
Massive premium. Market is pricing in years of compounding AI revenue.
Apple
Above its 10-year median (~20x). Paying up for the ecosystem.
Coca-Cola
Stable, predictable. You pay more for boring reliability.
Meta
Cheap given the cash generation of the ad business.
AT&T
Low multiple but business is stagnant and debt-heavy. Classic value trap.
Benchmarks (rough): utilities/banks 6-10x. Industrials 10-14x. Tech 15-30x. Hypergrowth 30-60x+.
Why EV/EBITDA > P/E
Ignores tax differences between countries
Accounts for debt (P/E doesn't)
Better for comparing companies with different capital structures
What bankers and acquirers actually use
Where it misleads
Ignores capex (a telecom needs to reinvest constantly)
Doesn't fit banks (no EBITDA in the same sense)
Can flatter hyper-growth with negative earnings
Still a snapshot, not a prediction
think like a buyer
EV/EBITDA answers: "If I bought this entire company today, how many years of operating earnings would it take to pay off the purchase?" Lower is usually cheaper, but always ask why.
Check yourself
Why is Enterprise Value used instead of market cap for valuation?