EBITDA Multiple Calculator

The price tag on an entire business

When a company changes hands, the price is almost never argued in absolute terms. It is argued in multiples. Someone says the business is worth six times, the other side says four, and the whole negotiation happens in that language.

What they are trading is the EBITDA multiple: the value of the entire business divided by its annual EBITDA. It answers a simple question, which is how many years of current operating earnings the buyer is paying for. This calculator builds the value of the whole business from its parts, then divides. If you own a company, this is roughly how the world will price it.

Six figures, because you are buying more than the shares

Five of the inputs assemble what is called enterprise value, and one is the earnings you measure it against.

Market capitalisation is the value of all the shares, which for a private company is your estimate of the equity's worth. Value of debt is what the company owes, because a buyer inherits it. Minority interest is the portion of a subsidiary the company consolidates but does not fully own, and preferred shares are equity ranking ahead of ordinary shares. Both are claims on the business, so both count, and both are simply zero for a great many companies. Cash and cash equivalents gets subtracted rather than added, which is the section below. Finally, EBITDA for the year.

Add the claims together, take off the cash, and you have enterprise value. Divide that by EBITDA and you have the multiple. The tool shows you both, which is useful, because enterprise value is a meaningful number in its own right.

Why the cash comes back off

The subtraction of cash puzzles people, and the logic is worth having because it explains what enterprise value is really measuring.

Imagine buying a business for 6,000,000 that has 500,000 sitting in its bank account. The moment the deal completes, that 500,000 is yours. You could take it straight back out. So the business did not really cost you 6,000,000, it cost you 5,500,000, because half a million came home with it.

Debt works the same way in reverse. If the business owes 2,000,000, you are taking on that obligation as part of the deal, so the true cost of acquiring it is higher than the share price alone suggests. Enterprise value is therefore the honest cost of taking control: everything you are on the hook for, less the money that comes back to you. It is why the same operating business can carry very different share prices depending on how much debt and cash it happens to be sitting on, while its enterprise value stays roughly stable.

Seven times, and what that sentence means

Take a company with a market capitalisation of 6,000,000, minority interest of 100,000, preferred shares of 200,000, debt of 2,000,000, and cash of 500,000, earning EBITDA of 1,100,000.

Enterprise value comes to 7,800,000, and dividing by EBITDA gives a multiple of 7.09 times. In plain English, the whole business is priced at a little over seven years of its current operating earnings.

Now turn it around, because this is the part that matters if you are the one selling. At 7.09 times, each single point of multiple is worth 1,100,000 of enterprise value, since that is one year of EBITDA. Move the negotiated multiple from 6 to 7 and the business is worth 1,100,000 more, without a single thing changing inside the company. That is why sellers fight so hard over what looks like a small number, and why the whole conversation happens in multiples rather than in totals.

Why dealmakers reach for this before the P/E ratio

The best-known valuation multiple is price to earnings, which divides the share price by earnings per share. So why do people buying whole companies mostly use this one instead?

Because P/E only looks at the equity. It uses the share price on top and net income underneath, and net income is already after interest and tax. That makes it hostage to how a company is financed. Load a business with debt and its net income falls while its share price falls too, and the ratio moves in ways that say more about the balance sheet than about the trading. Compare two identical operations, one debt-free and one heavily borrowed, on P/E and you will get a confusing answer.

The EBITDA multiple sidesteps that. Enterprise value counts equity and debt together on top, and EBITDA sits before interest and tax underneath. Both halves of the fraction are neutral about financing, so the comparison holds up across companies with completely different capital structures and tax positions. That is exactly the situation a buyer is in.

The catch is that this multiple inherits every criticism of EBITDA itself. Since EBITDA ignores the cost of assets wearing out, a capital-heavy business can look cheap on this measure while quietly needing most of those earnings to replace equipment. Buyers know this, which is why serious diligence always tests EBITDA against actual capital spending and working capital before anyone signs.

What multiples actually look like in the wild

Multiples vary enormously, and where you land depends more on what kind of business you are and how big than on how well you performed last year.

Small private businesses typically change hands somewhere around three to five times EBITDA. Larger and faster-growing private companies command six to twelve or more. Around eight times is a fair rough average for public companies across many industries, and mid-sized deals have recently been clearing somewhere near nine. At the top end, listed software companies have traded at extraordinary levels, sometimes thirty times or more, on the strength of growth and recurring revenue. Traditional manufacturing tends to sit far lower, with a median nearer five.

The single most important adjustment to make is between public and private. A publicly listed company's shares can be sold on a Tuesday afternoon; a private company can take a year to sell and may not sell at all. That difference in liquidity is worth real money, so applying a public company's multiple to a small private business will badly overstate its value. Buyers apply discounts for exactly that, and expecting the listed multiple is one of the most common ways owners end up disappointed.

What pushes your own multiple up or down

Within your industry's range, several specific things decide where you sit, and most of them are worth knowing years before you sell.

Recurring revenue lifts multiples more than almost anything else, because a buyer is purchasing predictability rather than a hope of repeat business. Growth lifts them, since the buyer is paying for future earnings and not just this year's. Size lifts them too, as larger businesses are seen as more durable and attract more bidders.

Pulling the other way, customer concentration is the classic multiple-killer. If one customer accounts for a large share of your revenue, a buyer sees that the business could lose a third of its earnings with one phone call, and that risk can knock a meaningful chunk off the multiple. Dependence on the owner does similar damage, since a business that cannot run without the person leaving is worth less to the person arriving.

One final point that matters more than most sellers expect. In private transactions the multiple is applied to adjusted EBITDA, not the raw figure from the accounts. Adjusted EBITDA normalises for things a new owner would not face, such as an owner paying themselves above or below market rate, personal expenses run through the business, or genuine one-off costs. Getting those adjustments right and properly evidenced routinely changes the sale price by more than haggling over the multiple does, because every unit of EBITDA you can legitimately justify gets multiplied several times over.

Questions people ask

How do you calculate the EBITDA multiple?

Divide enterprise value by EBITDA. Enterprise value is market capitalisation plus debt, minority interest, and preferred shares, less cash.

Why use enterprise value instead of the share price?

Because a buyer takes on the company's debt and receives its cash. Enterprise value reflects the true cost of acquiring the whole business, which makes it comparable across companies with different amounts of borrowing.

What is a good EBITDA multiple?

It depends on size, sector, and growth. Small private businesses commonly sell around three to five times, larger private companies six to twelve or more, and public companies average roughly eight with high-growth sectors far above that. Compare against recent transactions in your own industry and size bracket.

Can I use public company multiples to value my private business?

Only as a starting point, and expect to come down. Private businesses are far harder to sell, and buyers apply discounts for that lack of liquidity and for minority positions, so the public figure will overstate what a private company fetches.

References

The construction of enterprise value and the multiples by sector come from the sources below.

1. Damodaran, A. Enterprise Value Multiples by Sector (US), Stern School of Business, New York University (EV/EBITDA by industry, updated annually). pages.stern.nyu.edu
2. Brealey, R. A., Myers, S. C., and Allen, F. Principles of Corporate Finance (enterprise value, relative valuation, and comparable company analysis). McGraw-Hill.