EV/EBITDA Explained: Enterprise Value vs Market Cap

EV/EBITDA divides a company's enterprise value (EV), the value of its shares plus its debt minus its cash, by its earnings before interest, taxes, depreciation and amortization (EBITDA). Because it counts debt and cash, it compares companies with very different balance sheets on equal terms, which the price-to-earnings ratio does not. On October 9, 2026, Verizon (VZ) traded at about 7.1 times EBITDA and Alphabet (GOOGL) at 23.9 times, according to DataPorium data ^[1]^[3]. US companies with positive EBITDA averaged 19.7 times in January 2026, ranging from 6.5 for telecom services to 34.8 for semiconductors ^[5].

What is enterprise value?

Market capitalization is the value of a company's shares: share price times shares outstanding. Enterprise value is the price of the whole business, as a buyer taking over the company would see it. The buyer pays for the shares, takes on the debt, and gets the cash:

Enterprise value = market capitalization + total debt − cash and short-term investments

Fuller versions also add preferred stock and minority interests (the part of subsidiaries owned by outsiders) and sometimes lease liabilities. The simple version is enough to compare most companies, as long as the same method is used for all of them.

Two companies with similar market value, very different EV

Verizon and AT&T (T) had market values of $173.0 billion and $152.0 billion on October 9, 2026, but both carry far more debt than cash, so their enterprise values were much larger. Alphabet holds more cash than debt, so its enterprise value is smaller than its market value ^[1]^[3]^[4].

Company	Market value	Total debt	Cash	Enterprise value	EBITDA (12 months)	EV/EBITDA	P/E (trailing)
Verizon (VZ)	$173.0B	$193.6B	$1.8B	$364.9B	$51.1B	7.1	10.8
AT&T (T)	$152.0B	$165.8B	$17.6B	$300.2B	$44.9B	6.7	7.3
Microsoft (MSFT)	$3,973B	$128.8B	$76.8B	$4,025B	$194.2B	20.7	29.8
Alphabet (GOOGL)	$4,254B	$120.8B	$242.5B	$4,133B	$173.2B	23.9	17.5

Source: DataPorium stock pages, market values at the October 9, 2026 close and latest reported balance sheets and 12-month EBITDA; enterprise values and ratios are DataPorium calculations with the simple formula above ^[1]^[2]^[3]^[4].

For the telecom companies, debt is larger than the market value of the shares. Anyone buying Verizon would pay $173 billion for the equity and take on $194 billion of debt, so the business costs more than twice what the share price alone suggests.

What is EBITDA, and why use it?

EBITDA starts from operating profit and adds back depreciation and amortization, the accounting charges that spread the cost of past investments over time. It approximates the cash a business generates from operations before paying for interest, taxes and new investment.

EBITDA belongs with EV because both are measured before debt: EBITDA is earned for all the company's capital providers, lenders and shareholders alike, and EV is what all of them together have claims on. Net income, by contrast, is what is left for shareholders after interest, so it belongs with market value in the P/E ratio. Mixing the two, for example market value over EBITDA, would make heavily indebted companies look cheap.

Why EV/EBITDA and P/E can disagree

The table shows the two ratios ranking companies differently. Alphabet's trailing P/E of 17.5 is lower than Microsoft's 29.8, but its EV/EBITDA is higher, 23.9 against 20.7 ^[1]^[2]. Alphabet's trailing net income was raised by large gains on equity investments in 2026, which P/E counts but EBITDA, built from operating profit, does not; and its $242.5 billion of cash reduces its enterprise value ^[1]. How one-time gains distort P/E is covered in DataPorium's guide to trailing and forward P/E ^[7].

What is a good EV/EBITDA?

There is no single good number. Multiples depend on growth, margins and how much of EBITDA a business must reinvest. Aswath Damodaran of NYU Stern publishes averages by industry each January:

US industry (January 2026)	Companies	EV/EBITDA (positive-EBITDA firms)
Semiconductors	66	34.8
Software (system and application)	309	24.5
Total market	5,994	19.7
Retail (general)	23	17.4
Total market excluding financials	4,822	17.0
Utilities (general)	14	13.7
Oil and gas (integrated)	4	8.2
Telecom services	39	6.5

Source: Damodaran, Enterprise Value Multiples by Sector (US), data as of January 2026 ^[5].

Banks have no figure in the table because EV/EBITDA does not work for them: deposits and borrowings are their raw material, not financing, so "debt" cannot be separated from operations ^[5]. Banks are valued on book value and returns on equity instead.

What are the weaknesses of EBITDA?

EBITDA is popular partly because it flatters. Four things it leaves out matter for valuation:

Capital spending. Depreciation is added back, but the equipment still has to be replaced. Microsoft's additions to property and equipment were $115.9 billion in fiscal 2026, against $64.6 billion a year earlier, much of it for data centers ^[6]. A company that must reinvest most of its EBITDA deserves a lower multiple than one that does not. EV divided by EBITDA minus capital spending, or EV over free cash flow, adjusts for this.
Stock-based compensation. Many companies add back the cost of paying staff in shares when they report "adjusted EBITDA." It is a real cost to shareholders, paid through dilution.
Taxes and interest. They are real cash outflows. A highly indebted company may have a low EV/EBITDA and still little left for shareholders after interest.
Leases and other obligations. Accounting rules treat some leases as debt and their cost as depreciation and interest, which raises EBITDA. Comparing companies with different lease treatment needs care.

Balance-sheet risk is a separate question from valuation. A low multiple on a company with heavy debt can reflect real risk; debt-to-equity and interest coverage measure it ^[8].

P/E prices the shares; EV/EBITDA prices the whole business, debt and cash included, which is why buyers of companies use it.

How to use EV/EBITDA

Compute EV the same way for every company you compare: market value plus debt minus cash, adding minority interests and preferred stock where they are material.
Use the same EBITDA basis: reported, not "adjusted," unless every company is adjusted the same way.
Compare within an industry, against the averages above and the company's own history.
Check capital spending and stock compensation before concluding that a low multiple is cheap.
Check it against P/E. When the two disagree, look for one-time gains, large cash balances or heavy debt.

Key takeaways

Enterprise value = market value + debt − cash; Verizon's EV was $364.9 billion against a $173.0 billion market value on October 9, 2026 ^[3].
Verizon traded at 7.1 times EBITDA and AT&T at 6.7, while Alphabet traded at 23.9 and Microsoft at 20.7 ^[1]^[2]^[3]^[4].
US companies averaged 19.7 times EBITDA in January 2026, from 6.5 in telecom services to 34.8 in semiconductors ^[5].
EBITDA ignores capital spending: Microsoft spent $115.9 billion on property and equipment in fiscal 2026 ^[6].
Alphabet's P/E (17.5) was lower than Microsoft's (29.8), but its EV/EBITDA was higher, because of investment gains and cash ^[1]^[2].

Frequently asked questions

How do you calculate enterprise value?

Add total debt to market capitalization and subtract cash and short-term investments. For AT&T on October 9, 2026: $152.0 billion + $165.8 billion − $17.6 billion = $300.2 billion ^[4].

What is a good EV/EBITDA ratio?

It depends on the industry. In January 2026, US telecom services averaged 6.5, utilities 13.7, software 24.5 and the total market 19.7 ^[5].

Is EV/EBITDA better than P/E?

It is better for comparing companies with different amounts of debt and cash, and it ignores one-time investment gains. P/E is simpler and measures what is left for shareholders. Alphabet looked cheaper than Microsoft on P/E but not on EV/EBITDA in October 2026 ^[1]^[2].

Why can't you use EV/EBITDA for banks?

For banks, borrowed money is the product, not financing, so debt cannot be separated from operations. Industry tables such as Damodaran's show no EV/EBITDA for banks ^[5].