OCT · ISSUE 40 · October 2, 2026
CONCEPTEV/EBITDA: the multiple that counts the debt
The P/E looks only at the share price. EV/EBITDA looks at the price of the whole business, debt included.
P/E
price
ignores the debt
EV
enterprise value
price + net debt
EBITDA
earnings
before interest
THE IDEA
EV/EBITDA
enterprise value divided by operating earnings
Two companies can share the same P/E and be worth very different amounts: if one is loaded with debt and the other isn't, only EV/EBITDA reveals it, because it includes what the company owes.
EXAMPLE
TO GET IT15x
15x
EV/EBITDA, a rough reference figure
It means you pay 15 years of operating earnings to buy the whole business, debt included. The P/E leaves debt out of that math.
A multiple of 15 times EBITDA is considered expensive; 6 to 8, cheap. It's a rough guide, but only EV/EBITDA counts debt in the math.
- MULTIPLE
- — How many times earnings you pay for a company. Higher means pricier.
- NET DEBT
- — What a company owes minus the cash it has on hand.
SIMPLE RULE
THE KEYBuying a company means buying its debts
“The P/E tells you what the share costs. EV/EBITDA tells you what the business costs, with its debts put on the table.”
When you buy a whole business, you inherit its debt. That's why the real price includes what it owes, not just the value of its shares.
- MARKET CAP
- — Share price times the total number of shares. The value of the shares, not the business.
- LEVERAGE
- — The use of debt to fund a company. It amplifies both gains and risks.
THE MECHANICS
HOW IT WORKSThe more debt, the further the real price drifts from the share price
Illustrative curve. Two companies with the same market cap are worth different amounts if one owes a lot and the other doesn't.
Market cap looks only at the shares (the flat line). Enterprise value rises as debt grows, and the P/E never sees it.
- ENTERPRISE VALUE
- — What it costs to buy the whole business: shares plus debt, minus cash.
- NET CASH
- — When a company holds more cash than debt; its EV is lower than its market cap.
IMPLICATIONS
WHY IT MATTERSThree reasons professionals prefer EV/EBITDA
IT COUNTS THE DEBT
The P/E ignores how much a company owes. EV/EBITDA includes it, so a heavily indebted firm doesn't look cheap just because its share price is low.
IT IGNORES ACCOUNTING TRICKS
EBITDA strips out interest, taxes and depreciation, line items every company books differently. That lets you compare businesses more cleanly.
IT COMPARES LIKE WITH LIKE
For capital-intensive firms (energy, telecom, industrials), EV/EBITDA is the standard because it neutralizes the debt differences between competitors.
It's not snobbery: EV/EBITDA compares companies more fairly than the P/E does.
- DEPRECIATION
- — The accounting spread of an asset's cost across its useful life.
- CAPITAL-INTENSIVE
- — Businesses that need heavy investment in assets and tend to fund it with debt.
BREAKDOWN
WHAT IT'S MADE OFHow enterprise value is built
Illustrative split. In a company with net cash, debt subtracts instead of adds, and EV sits below the market cap.
Enterprise value isn't just the share price: you add what the company owes.
- NET DEBT
- — Total debt minus available cash. If cash exceeds debt, it's net cash.
- AT MARKET PRICE
- — Valued at the current quote, not at what it originally cost.
EXAMPLES
WHERE YOU SEE ITFive sectors where EV/EBITDA changes the picture
| XLU | ~80 | → ~0% | Utilities. A heavily indebted sector: its P/E can mislead, EV/EBITDA reveals the real weight of debt. |
| XLK | ~250 | → ~0% | Tech. Often runs net cash: its EV is LOWER than its market cap, the opposite of the norm. |
| XLE | ~95 | → ~0% | Energy. A capital-intensive business; EV/EBITDA is the sector's standard multiple. |
| IYT | ~75 | → ~0% | Transport. Fleets funded with debt: comparing by P/E distorts, by EV/EBITDA it doesn't. |
| VIG | ~200 | → ~0% | Dividend growers. Quality firms with controlled debt and a low, stable EV/EBITDA. |
Representative names for the concept, not recommendations or day prices.
- ETF
- — An exchange-traded fund that bundles many stocks from a sector or index.
- NET CASH
- — When cash exceeds debt; it lowers enterprise value versus market cap.
WRAP
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- EV/EBITDA
- — Enterprise value divided by operating earnings. It counts debt; the P/E doesn't.
- P/E
- — Share price over earnings per share. The most-cited multiple and the most incomplete.