What EV/EBITDA means

P/E and P/B both price the equity only — what shareholders’ slice of the company costs. EV/EBITDA prices the whole business instead: what would it actually cost to buy every share and take on every rupee of debt, netting off the cash already sitting on the balance sheet?

That total price tag is enterprise value (EV). Comparing it to EBITDA (earnings before interest, tax, depreciation and amortisation) — rather than EPS (earnings per share) or PAT (profit after tax) — makes EV/EBITDA useful for comparing companies with very different debt levels: unlike P/E, it isn’t distorted by how much of the company is funded by equity versus borrowing.

The formula

EV = Market Cap + Total Debt − Cash & Liquid Investments
EV/EBITDA = EV / EBITDA

Worked example: Desi Bites Foods Ltd

  ₹ Lakh
Market Cap 8,000
+ Debt 400
− Cash 1,880
Enterprise Value 6,520
EBITDA (FY25) 441
EV/EBITDA 14.8x

Where does the ₹1,880 lakh of cash come from? It’s the ₹280 lakh Desi Bites held at the end of FY25, plus the ₹1,600 lakh it raised in the IPO, assumed to still be sitting in the bank. The ₹400 lakh of debt is the same FY25 term loan — the IPO money wasn’t used to pay it down.

Worked example: Britannia Industries

From Britannia Industries’ audited consolidated FY25 results and the 30 June 2025 closing price used throughout this module. For illustration only.

  ₹ Crore
Market Cap 1,40,950.59
+ Debt 1,224.77
− Cash & Investments 1,424.12
Enterprise Value 1,40,751.24
EBITDA (FY25) 3,187.15
EV/EBITDA 44.2x

Britannia’s multiple is far higher than Desi Bites’. Mechanically, a high EV/EBITDA means the market is paying for expected quality or growth — and the leverage posts already showed Britannia carries negative net debt. Whether this particular multiple is justified isn’t assessed here.

Common mistakes

  • Comparing EV/EBITDA across companies without checking capex needs. Two companies can share an identical EV/EBITDA while one needs to reinvest far more of that EBITDA into capex (capital expenditure) just to sustain itself — see capex intensity. The “cheaper” multiple on paper isn’t always the cheaper business in practice.
  • Using EBITDA without checking its quality. EBITDA can be flattered by aggressive accounting choices — pairing it with EBITDA margin trends and OCF/PAT is a useful sanity check before trusting the multiple.
  • Not updating EV when debt or cash changes materially. A stale EV, calculated before a large debt raise or a big cash payout, understates or overstates the true multiple.
  • Treating a lower EV/EBITDA as automatically cheaper on an apples-to- apples basis. Growth rates, margins, and capital intensity all differ across companies — a lower multiple can simply reflect lower quality or slower growth, not a bargain.

Takeaway: EV/EBITDA prices the whole business, equity and debt together, so it compares differently-funded companies more fairly than P/E. Like every multiple, it only means something next to growth, quality and capex needs.