# Intrinsic Value By EV To EBITDA Ratio

This calculator computes the intrinsic value of a stock by utilizing the company’s key parameters such as EBITDA, Total Debt, and Outstanding Shares. Where, EBITDA is a crucial metric that indicates the profitability of a company, making it a vital factor for any business to sustain its operations.

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## How EV/EBITDA Ratio Intrinsic Value Calculation Work?

We've developed a slightly different method to calculating the Intrinsic Value with EV to EBITDA Ratio. Median EV/EBITDA plays the biggest role in it. Here is how we develop this formula. First, we take the EV/EBITDA calculation formula and modify it:

``` EV/EBITDA = Enterprise Value / EBITDA ```
``` Enterprise Value = EV/EBITDA x EBITDA ```

Here, We replace EV/EBITDA with median EV/EBITDA to average out. Or you can take the industry average EV/EBITDA to more industry-specific results.

Now, we use the calculated Enterprise Value to find the equity value. It is a useful metric that calculates the total value of a company that is available to its shareholders.

``` Equity Value = Enterprise Value - Debt / Total No. of Shares (Outstanding Shares) ```
``` The final Equity Value = Intrinsic Value of the Stock ```

While we understand how it's calculated, it's essential to also understand the key metrics involved, such as Enterprise Value, EBITDA, EV/EBITDA, etc. Let's delve into these metrics and their limitations so that you know when they should be used and when not consider.

The Enterprise Value (EV) metric is crucial for accurately assessing a company's total financial worth. While market capitalization provides a similar measure, EV offers a more precise valuation.

This is because EV considers the debt of the company that fuels its growth, which is essential for understanding the true value of any well-established company. It excludes highly liquid assets such as short-term investments and marketable securities, which are less relevant metrics in this context.

It can be calculated in multiple ways, such as

Formula 1. Enterprise Value (EV) = Market Capitalization + Total Debt – Cash and Equivalents

Formula 2. Enterprise Value = EV/EBITDA x EBITDA

Formula 3. EV = Common Shares + Preferred Shares + Market Value of Debt + Noncontrolling Interest – Cash and Equivalents

Mostly, stable, old, and large-cap companies provide good and consistent dividends to their shareholders. Stocks with consistently higher dividend yields are also called value stocks.

• Not useful for industries that need High-debt.
• It includes total debt but does not show how well the company utilizes the debt.
• Can fluctuate significantly with market conditions.
• Does not account for significant non-operating assets.

EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. It focuses on the core operating performance of a company by excluding its capital investments, including plant, property & equipment and expenses related to debt. This allows for a clearer view of how well the business itself is performing.

There are two formulas to calculate EBITDA.

Formula 1: EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization

Formula 2: EBITDA = Operating Income + Depreciation + Amortization