What is EV/EBITDA?
In short: EV/EBITDA divides a company's enterprise value — the market value of its shares plus its net debt — by its earnings before interest, tax, depreciation and amortisation. It measures how many years of operating earnings the whole business costs, whatever mix of debt and shares funds it.
How is EV/EBITDA calculated?
EV/EBITDA is calculated by dividing enterprise value — the market value of the company's shares plus its debt, minus its cash — by EBITDA, its earnings before interest, tax, depreciation and amortisation. The result is roughly how many years of operating earnings it would take to pay for the whole business, debts included.
- Enterprise value (EV) = market capitalisation + debt − cash. It is roughly what it would cost to buy the whole business, debts included.
- EBITDA = earnings before interest, tax, depreciation and amortisation — a rough measure of operating profit before financing and accounting choices.
EV/EBITDA = enterprise value ÷ EBITDA.
Why use it instead of P/E?
EV/EBITDA is used alongside P/E because it accounts for debt. Two companies on the same P/E can carry very different borrowings, and P/E ignores that. By valuing the whole business, debt included, against earnings before interest and tax, EV/EBITDA compares companies funded in different ways more fairly.
P/E ignores debt: two companies with the same P/E can carry very different borrowings. EV/EBITDA counts the debt, so it compares companies with different funding more fairly.
| Company | EV/EBITDA (4 October 2026) |
|---|---|
| BHP (BHP.AX) | 10.9 |
| Wesfarmers (WES.AX) | 20.5 |
| Commonwealth Bank (CBA.AX) | not meaningful |
Where EV/EBITDA misleads
- Not for banks. For a bank, debt is its raw material — deposits and borrowings fund its loans — so EV and EBITDA lose their meaning.
- EBITDA ignores real costs. Capital-heavy businesses must keep spending to replace equipment; EBITDA leaves that out.
- Lease accounting shifts it, because rent on leased stores and equipment is now partly moved below EBITDA.
How ShareSift uses it
On ShareSift, an EV/EBITDA below 10 earns 12 of 100 points in the ShareSift value score.
Frequently asked questions
What is a good EV/EBITDA?
Below 10 is a common screen for a reasonably valued business, but levels vary widely by sector. Capital-light, fast-growing companies trade higher; mature, capital-heavy ones lower. Compare a company with its own history and with similar businesses rather than with a single market-wide number.
Why is there no EV/EBITDA for banks?
For a bank, debt — customer deposits and wholesale borrowing — is how it funds the loans it earns from, so subtracting it to find enterprise value makes no sense. Banks are usually valued on price-to-book and return on equity instead. ShareSift counts the missing figure as a failed value-score test.
Sources
- ASIC Moneysmart, Choose your investments — the Australian regulator's guide to assessing investments.
- Company figures: Yahoo Finance via ShareSift, as of 4 October 2026. They change daily.
This information is general in nature and does not take into account your objectives, financial situation or needs. ShareSift is not a financial adviser and does not hold an Australian Financial Services Licence. Companies named are examples of how the measure works, not recommendations. Consider whether any information is appropriate for you and seek independent advice before making an investment decision.