History
EBITDA is often credited to cable-TV pioneer John Malone, who in the 1970s used it to show the cash power of companies whose heavy depreciation made them look unprofitable. In the 1980s, as KKR and other buyout firms bought companies with borrowed money, it became the measure of whether a target could service its debt, and EV/EBITDA became a standard yardstick for deal prices.
Calculation and reading
Enterprise value is market capitalization plus net debt, reflecting that a buyer takes on debt as well as equity. With an 8-trillion-won market cap, 2 trillion of net debt and 1 trillion of EBITDA, the multiple is 10×. Because it neutralizes differences in leverage and depreciation, it complements the P/E ratio; lower generally means cheaper.
Limits
Warren Buffett has long argued that depreciation is a real cost of replacing equipment, so ignoring it flatters profits. For capital-heavy industries check free cash flow too, and compare only within a sector.
FAQ
- What multiple counts as cheap?
- There is no universal number; compare with sector peers and the company's own history.
- How is it different from P/E?
- P/E compares price with shareholders' net income; EV/EBITDA compares the whole firm's value, debt included, with operating cash earnings.
Sources reviewed: 2026-10-26
References
- Damodaran, A. (2012). Investment Valuation (3rd ed.). Wiley.
- Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and Managing the Value of Companies (7th ed.). McKinsey & Company / Wiley.
- Buffett, W. (2000). Letter to the Shareholders of Berkshire Hathaway Inc.