Enterprise Value over EBITDA

How to read it

stockrow works out enterprise value as the stock price times the weighted basic share count from the latest quarter, plus long-term debt and the current part of debt, minus cash and short-term investments, all from the latest quarter. It then divides by EBITDA for the trailing twelve months. The ratio rises when the share price rises, debt grows, cash falls or EBITDA shrinks, and falls in the opposite cases. It is worked out for every trading day, from the latest reported figures on or before that day.

What is typical

Because it counts debt as well as equity, it compares companies with different capital structures more evenly than price-based ratios. Fast-growing businesses and those with high margins or recurring revenue tend to trade at higher multiples, while cyclical, commodity and slow-growth businesses tend to trade lower. Compare the figure with the median for the company’s sector.

Pitfalls

stockrow shows the value as zero when the result is negative, which happens when EBITDA is negative or cash exceeds market value plus debt, so a zero is not a sign of a cheap valuation. EBITDA ignores capital spending, which flatters capital-heavy businesses. Quarterly and annual values are the daily value on the first trading day on or after each period end.