The table below presents the current and historical Enterprise Multiples (EV/EBITDA) by Sector, calculated using the 500 largest publicly traded U.S. companies. Comparing a sector’s current enterprise multiple to its historical average can help assess whether the sector might be currently undervalued or overvalued. Note: The Financials sector is excluded, as EBITDA is not a meaningful metric for financial companies.

Among the largest companies: Apple Inc., Microsoft Corp., & Nvidia Corp. are part of the Information Technology sector; Amazon.com Inc. & Tesla Inc. fall under the Consumer Discretionary sector; and Alphabet Inc. & Meta Platforms Inc. belong to the Communication Services sector.

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EV/EBITDA Multiple by Sector (Large Cap U.S. Companies)

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How the EV/EBITDA multiple by Sector is calculated?

The EV/EBITDA multiple for a sector is determined by dividing the total enterprise value of all companies within that sector by the sum of their total annual EBITDA.

Here’s the step-by-step calculation process:

1. Calculate Enterprise Value (EV): Calculate the Enterprise Value (EV) for each company. EV is calculated as the market capitalization (total market value of outstanding shares) plus the total debt of the company, minus cash and cash equivalents. The formula is:

2. Calculate EBITDA: Calculate the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for each company, using the latest four quarters (trailing twelve months) of reported data that is available. The formula is:

Note: When calculating historical multiples, it’s crucial to use financial results available at that specific time. There is always a delay between the end of a fiscal quarter and when companies report their earnings.

3. Calculate EV/EBITDA by Sector: Calculate the EBITDA multiple of a Sector by dividing the total enterprise value of all sector companies by the sum of their total annual (trailing twelve months) EBITDA. Pay in mind that comparing the EBITDA multiple of one sector/industry to another sector does not offer much indication of the relative valuations of different industries. The multiple is most useful when comparing a sector’s current multiple to its historical average.

Using EV/EBITDA to value companies

The Enterprise Value to EBITDA (EV/EBITDA) multiple is a widely used metric for assessing a company’s valuation. It serves as a capital structure-neutral alternative to the Price-to-Earnings (P/E) ratio. When comparing valuations across different companies, EV/EBITDA is often preferred over P/E, as the latter can be misleading due to variations in leverage, depreciation accounting practices, and tax rates.

This multiple is most commonly applied to industrial and consumer sectors but is less frequently used for financial or energy companies. In the oil and gas industry, sector-specific valuation metrics such as EV/Reserves, EV/Production, and EV/Capacity are often used instead. Banks and insurance companies, on the other hand, are typically valued based on the price-to-book ratio.