How this number is made
Enterprise value is what you would pay for the operations: the equity at market, plus the debt you would take on, minus the cash you would receive. Dividing by EBITDA gives a multiple that does not depend on the capital structure the way a P/E does. EBITDA is not cash flow. Leases, pensions, and a minority interest are left out unless you already folded them into debt.
- Market cap is price times diluted shares, if you have it.
- Leave EBITDA at zero if you only want the enterprise value.
Formula
Enterprise value = market cap + debt − cash. Multiple = enterprise value ÷ EBITDA.
Worked example
With the figures already in the form, enterprise value is $560,000,000.
Questions
Why subtract cash?
A buyer who pays the equity price also receives the cash. Counting it in the price and again as value double counts it.
Is a low multiple cheap?
Only against a business with a similar need for capital spending. EBITDA ignores that spending.