When is EBITDA used in business valuation?

EBITDA is frequently used in business valuation, especially when comparing the value of similar companies within an industry. EBITDA multiples, calculated by dividing the enterprise value by its EBITDA, help determine a company’s valuation relative to its earnings. This approach is particularly common in mergers and acquisitions (M&A) to assess whether an offered price aligns with industry norms. However, using EBITDA in conjunction with other valuation methods and factors is important to obtain a comprehensive valuation estimate.