The table below lists the current & historical Enterprise Multiples (EV/EBITDA) by Sector. The multiples are calculated using the 500 largest public U.S. companies. Comparing the current enterprise multiple of a sector/industry to its historical average value can be used to evaluate if the sector is currently undervalued or overvalued. Note: The ratio is not available for the Financials sector as EBITDA is not a meaningful item for financial companies.
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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 EBITDA multiple for a specific sector is calculated by dividing the total enterprise value of all sector companies by the total sum of annual EBITDA of the companies.
The enterprise value is calculated by adding the market value of a company’s debt to the company’s market capitalization and then deducting cash (and cash equivalents) that the company is holding. The multiples on the table above are trailing twelve months, meaning the last four quarters are used when EBITDA (earnings before interest, taxes, depreciation and amortization) is calculated.
Using EV/EBITDA to value companies
Enterprise value to EBITDA is a popular multiple that is used to measure the value of a corporation. The ratio can be seen as a capital structure-neutral alternative for Price/Earnings ratio. When valuations of different companies are compared to each other, the enterprise multiple is often considered more suitable than P/E. Using P/E ratio for comparative analysis can be misleading due to different amounts of leverage, different accounting practices related to depreciation and different tax rates.
The multiple is most commonly used to evaluate industrial and consumer industries. It is more rare to use the ratio for financial or energy companies. For oil & gas companies, there are various industry specific valuation multiples like EV to Reserves, EV to Production and EV to Capacity. Banks and insurance companies are most commonly evaluated using the price-to-book ratio.