EV to EBITDA Ratio

The speaker addresses the shortfalls of the p/e ratio.  The EV/EBITDA ratio attempts to define a relationship between the enterprise value (market capitalization plus net debt) of a company and a measure of profitability, EBITDA.  Since interest, taxes, depreciation, and amortization are excluded from this calculation, this ratio neutralizes the effects of varying interest levels between companies and depreciation policies and provides a more relevant number for basis of comparison.