The EBITDA ratio, also known as the 'EBITDA multiple', is a financial metric used to assess a company's financial performance and profitability. It's calculated by dividing the company's Enterprise Value (EV) by its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
*It is also sometimes define as the opposite, i.e. EBIDTA / EV.
In more detail, the EBITDA ratio is a valuation ratio, indicating the worth of a company relative to its EBITDA. It is a popular tool among investors and analysts, as it eliminates the effects of financing and accounting decisions, providing a more objective measure of a company's operational profitability and cash flow generation.
Enterprise Value (EV) is a comprehensive measure of a company's total value, considering not only its equity but also its debt and cash. EBITDA, on the other hand, is a measure of a company's operating performance that excludes non-operating expenses such as interest, taxes, and depreciation.
While the EBITDA ratio can provide valuable insights, it should be used in conjunction with other financial metrics to gain a comprehensive understanding of a company's financial health and performance.
For Amazon, the EBITDA ratio is calculated by dividing the company's enterprise value (market capitalization + debt - cash) by its EBITDA (operating income + depreciation + amortization).
Similarly, for Apple, the EBITDA ratio is determined by dividing the enterprise value (market capitalization + debt - cash) by the EBITDA (operating income + depreciation + amortization).
For Tesla, the EBITDA ratio is calculated by dividing the enterprise value (market capitalization + debt - cash) by its EBITDA (operating income + depreciation + amortization).