Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The multiple applied to EBITDA is a market assumption pulled from comparable transactions, not a fact about the specific business being valued, and a modest change in that assumed multiple moves the resulting valuation substantially, since it's multiplying, not adding, against the EBITDA figure.
Before you rely on it
What to check
Test the valuation across a plausible range of multiples rather than anchoring on a single number, and confirm the comparables used to justify that multiple genuinely resemble the business being valued.
The common error
Where people go wrong with EBITDA multiple valuation calculator
Treating a single EBITDA multiple as an objective, fixed fact about a company's worth. It's an assumption borrowed from comparable deals, and a small change in that assumption swings the valuation by a large dollar amount.
Sensitivity evidence
How EBITDA, SDE or earnings metric changes the estimated equity value
| EBITDA, SDE or earnings metric | Estimated equity value | Estimated enterprise value |
|---|---|---|
| $400,000 | $1,550,000 | $2,000,000 |
| $450,000 | $1,800,000 | $2,250,000 |
| $500,000worked example | $2,050,000 | $2,500,000 |
| $550,000 | $2,300,000 | $2,750,000 |
| $600,000 | $2,550,000 | $3,000,000 |
Every input, tested
Which input moves the estimated equity value most
| Input | Tested from | To | Estimated equity value at each end | Swing |
|---|---|---|---|---|
| EBITDA, SDE or earnings metric | $450,000 | $550,000 | $1,800,000 to $2,300,000 | $500,000 (24%) |
| Selected valuation multiple | 4.50× | 5.50× | $1,800,000 to $2,300,000 | $500,000 (24%) |
| Debt | $540,000 | $660,000 | $2,110,000 to $1,990,000 | $120,000 (5.9%) |
| Cash | $135,000 | $165,000 | $2,035,000 to $2,065,000 | $30,000 (1.5%) |
Two variables at once
Estimated equity value by EBITDA, SDE or earnings metric and selected valuation multiple
| EBITDA, SDE or earnings metric \ Selected valuation multiple | 4.00× | 5.00× | 6.00× |
|---|---|---|---|
| $400,000 | $1,150,000 | $1,550,000 | $1,950,000 |
| $450,000 | $1,350,000 | $1,800,000 | $2,250,000 |
| $500,000 | $1,550,000 | $2,050,000 | $2,550,000 |
| $550,000 | $1,750,000 | $2,300,000 | $2,850,000 |
| $600,000 | $1,950,000 | $2,550,000 | $3,150,000 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| EBITDA, SDE or earnings metric | $500,000 |
| Selected valuation multiple | 5.00× |
| Debt | $600,000 |
| Cash | $150,000 |
| Estimated equity value | $2,050,000 |
| Estimated enterprise value | $2,500,000 |
Where the inputs come from
The earnings metric is the business's EBITDA, meaning earnings before interest, taxes, depreciation and amortization, and should be adjusted for one-time items and owner expenses so it shows a normal year. The multiple depends on the industry, size, growth and risk; small private businesses often sell at lower multiples than large public ones. Debt and cash come from the balance sheet, so equity value can be derived from enterprise value.
When the result stops applying
A multiple is a shortcut that compresses growth, risk, customer concentration and the quality of earnings into one number. Two businesses with the same EBITDA can be worth very different amounts. Multiples change with the market, interest rates and buyer type. Working-capital adjustments and deal structure, including earn-outs, change the real price.
What to compare it with
Cross-check with the discounted cash flow calculator, which values the cash flows directly, and the SDE page for owner-operated businesses. The EBITDA margin calculator shows profit quality. The debt-to-equity and interest coverage pages show financing risk that a buyer will weigh.
People also ask
Frequently asked questions
What multiple should I use for my business?
Use recent sales of comparable businesses in your industry and size. Small businesses commonly sell for a few times earnings, and larger, faster-growing ones for more.
Why subtract debt and add cash?
Enterprise value is the price for the operations, but the owner keeps the cash and pays off the debt, so equity value adjusts for both.
What is EBITDA and why adjust it?
EBITDA is earnings before interest, taxes, depreciation and amortization. Adjustments remove one-time items and owner perks so the figure shows normal operating earnings.