Equisigma Investor Academy - Sunday Learning Series

Equisigma Investor Academy – Sunday Learning Series

Lesson 4: EV/EBITDA – The Professional Investor's Favorite Valuation Metric

Quick Recap

After learning P/E, PEG and P/B, we now move to EV/EBITDA, a valuation ratio widely used by institutional investors and investment bankers.

What is Enterprise Value?

Enterprise Value (EV) measures the total value of a business by considering market capitalization, debt and cash. EV = Market Capitalization + Debt – Cash.

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It reflects operating profitability before financing and accounting adjustments.

Why EV/EBITDA Matters

Unlike P/E, EV/EBITDA considers debt and cash, making it ideal for comparing companies with different capital structures.

Where It Is Useful

Manufacturing, engineering, cement, auto, infrastructure and other capital-intensive industries.

Where It Is Not Suitable

Banks, NBFCs and insurance companies.

Common Mistakes

Do not compare different industries. Never use EV/EBITDA in isolation. Combine it with ROCE, Free Cash Flow, debt analysis and management quality.

Equisigma Insight

Professional investors use EV/EBITDA because it reflects the economic value of a business better than market capitalization alone.

Key Takeaways

Enterprise Value shows the true acquisition cost of a business. EV/EBITDA is a professional valuation tool and should always be used with other financial metrics.

Coming Next Sunday

Return on Equity (ROE) – The Profitability Ratio Every Investor Must Understand.

Metric	Company A	Company B	Observation
Market Cap	10000	10000	Same
Debt	500	5000	B has higher debt
Cash	1000	500	A has more cash
Enterprise Value	9500	14500	B is costlier

Best Regards

Team Equisigma