EV/EBITDA: How Professional Investors Value Companies

When a private equity firm acquires a company, when a strategic buyer evaluates a target, when an investment bank models a transaction—the first multiple they reach for is almost always EV/EBITDA. Not the P/E ratio. Not price-to-sales. EV/EBITDA.

There are good reasons for this, and understanding them makes you a better reader of financial analysis and a more informed participant in any business valuation conversation—whether you’re selling, buying, or simply trying to understand what your operation is worth.

The two components: what they are and why they’re paired

Enterprise Value (EV) is the total value of a business to all capital providers—equity holders and debt holders combined. It answers the question: what would it cost to acquire the entire business, including taking on its debt and netting out its cash?

The basic formula:

EV = Market Capitalisation + Net Debt

Where net debt = total financial debt minus cash and cash equivalents.

Why include debt and subtract cash? Because when you buy a company, you’re acquiring the whole enterprise—its assets, its liabilities, and its cash position. If a company has €20M in debt, a buyer inheriting that debt is effectively paying €20M extra for the business. If it has €5M in cash sitting in the bank, the buyer gets that too, reducing the effective cost.

EV gives a level playing field for comparing companies with different capital structures. Two companies with identical operations but different amounts of leverage will have very different market capitalisations—but their enterprise values will be similar, because EV accounts for the debt.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is an approximation of operating cash generation before financing and accounting decisions come into play.

The logic of stripping out interest, taxes, depreciation, and amortisation:

• Interest: Reflects how a company is financed, not how it operates. Removing it makes EBITDA independent of capital structure.
• Taxes: Vary by jurisdiction, ownership structure, and tax planning. Removing them makes comparison across entities cleaner.
• Depreciation and amortisation: Non-cash charges that depend heavily on accounting policies and asset age. Removing them focuses attention on cash-generative capacity rather than accounting conventions.

The result is a number that’s a reasonable proxy for what the business generates from operations before anyone takes their cut: debt holders, tax authorities, or accountants capitalising intangibles.

Why EV/EBITDA beats P/E for most serious valuations

The P/E ratio compares price to net profit—a number after interest, taxes, and non-cash charges. This means the P/E is heavily influenced by how a company is financed, where it’s domiciled for tax purposes, and what accounting choices it makes around depreciation and amortisation.

EV/EBITDA cuts through all of that. It compares total enterprise value to operating earnings before those financing and accounting decisions. This makes it:

Better for cross-company comparison. A highly leveraged company and an unleveraged competitor in the same industry will have dramatically different P/E ratios even if their operations are identical. Their EV/EBITDA ratios will be similar—which is the right answer if you’re trying to understand operational value.

More useful in transactions. When you’re acquiring a business, you’re typically going to refinance it anyway. The target’s current capital structure is largely irrelevant—what matters is the underlying business value, which EV/EBITDA captures directly.

Less distorted by accounting choices. Heavy depreciation charges on older assets, large amortisation of acquired intangibles, accelerated tax depreciation schemes—all of these distort net profit and therefore the P/E. EV/EBITDA is less susceptible to these effects.

Comparable across jurisdictions. International comparisons using P/E are complicated by different tax regimes. EV/EBITDA sidesteps this by removing taxes from the denominator.

What counts as a “normal” multiple

EV/EBITDA multiples vary significantly by industry, growth profile, and market cycle. Broad reference points as of current market conditions:

• Mature, low-growth businesses (traditional manufacturing, stable services): typically 4–6×
• General market average across diversified sectors: roughly 8–12×
• High-growth technology or software: 15–25× or higher in bull markets
• Aviation services and light aviation operators: typically 4–8× depending on size, fleet modernity, and regulatory standing
• Flight training ATOs: often in the 4–7× range, with higher multiples for well-documented operations with diversified revenue and modern fleets

These are ranges, not targets. What matters is where the specific business sits within its peer group, and why.

The main limitations

EBITDA is not cash flow. This is the single most important caveat about this metric. The D and A that get added back—depreciation and amortisation—exist because the underlying assets actually wear out and need to be replaced. A business that depreciates its aircraft over seven years but needs to replace them every twelve still has a real capital expenditure burden that EBITDA ignores.

In capital-intensive businesses—and aviation is certainly one—CapEx (capital expenditure) is a meaningful and often large component of true cash consumption. EV/EBITDA looks good for businesses with high depreciation relative to maintenance CapEx. It looks misleadingly good for businesses where the assets require heavy ongoing reinvestment.

For this reason, sophisticated investors in capital-intensive sectors often prefer EV/EBIT (which includes depreciation) or EV/(EBITDA minus maintenance CapEx) for more accurate comparisons.

EBITDA can be calculated several ways. “Adjusted EBITDA” is a concept that sellers love and buyers should scrutinise. Adjustments for one-off items, normalisation of owner compensation, add-backs for non-recurring costs, and other modifications can make the underlying number look substantially different from reported EBITDA. Every adjustment requires examination: is it genuinely one-off, or is it a recurring operational reality dressed up as an exception?

The multiple assumes the EBITDA is sustainable. A business that generated €1.2M EBITDA last year but had unusual factors—a temporary contract, deferred maintenance, exceptional market conditions—may not sustain that level. An EV/EBITDA multiple applied to unsustainable EBITDA produces a misleading valuation.

Scale and liquidity affect the multiple. Smaller private businesses trade at meaningful discounts to larger ones and to public company peers, even when operations are comparable. The discount reflects illiquidity, key-person risk, limited diversification, and less transparent reporting. A business generating €800K EBITDA is not worth the same multiple as a business generating €8M, even in the same sector.

Applying EV/EBITDA to aviation businesses

For ATOs, aeroclubs, aerial work companies, and private aircraft operators evaluating their own business worth or considering an acquisition, EV/EBITDA provides a useful framework—with some sector-specific adjustments to keep in mind.

Fleet condition affects EBITDA quality. An operation running with older aircraft may have low depreciation charges (assets largely written off) but faces significant near-term capital expenditure for fleet renewal. This inflates EBITDA relative to true cash-generative capacity. When valuing or buying such a business, normalise EBITDA for a maintenance CapEx assumption that reflects the real cost of keeping the fleet operational.

Owner compensation is frequently non-market. Many small aviation businesses are run by owner-pilots whose reported salary bears no relationship to what a market-rate professional would cost. Properly normalising EBITDA means adjusting compensation to market rates before applying any multiple.

Regulatory exposure has value (or discount). An ATO with a well-documented, audited approval history, clean safety records, and a stable regulatory relationship is worth a higher multiple than one that has operated in grey areas, has pending findings, or lacks documentation. Regulatory risk is real value risk in this sector.

Revenue concentration matters. A flight school where 60% of revenue comes from a single airline pipeline agreement faces concentration risk that should discount the multiple. Diversified revenue—across private students, commercial training, aerial work, and aircraft services—supports a higher multiple.

Key-person dependency discounts value. If the entire operation depends on one instructor-examiner or one certificated person, the business has lower value than its EBITDA multiple would suggest. Institutional knowledge that isn’t documented, transferable, or replaceable is a genuine risk that buyers price.

How to build a back-of-envelope valuation

A simple EV/EBITDA valuation exercise for a private aviation business:

1. Start with reported EBITDA for the last twelve months.
2. Adjust for owner compensation to market rates (add back excess; reduce if under-paying).
3. Adjust for any clearly one-off items (but be honest about what’s truly one-off).
4. Deduct an estimate of normalised maintenance CapEx (what does it actually cost to keep the fleet at current standards?).
5. Apply an appropriate multiple based on sector, size, growth, and risk profile.
6. Subtract net debt (total financial debt minus cash) to get equity value.

The result is a rough equity value—what the ownership stake is worth, not what the business would transact for in every detail. Real transactions involve negotiation, due diligence adjustments, earnout structures, and other elements that move the final number. But this framework gives you a reasonable anchor.

EV/EBITDA as a sanity check in acquisition discussions

One practical use of EV/EBITDA in acquisition discussions is as a cross-check against seller expectations. If a seller is asking a price that implies a 14× EV/EBITDA multiple for a mature flight training business with stable but modest growth, that’s a significant premium to where comparable transactions typically occur. The question isn’t whether the business is good—it might be excellent—but whether the price implies expectations of future performance that the historical track record doesn’t support.

Similarly, if you’re the seller and a buyer is offering a price that implies 3.5× EBITDA for a well-documented, diversified operation with strong regulatory standing, it’s worth understanding whether the discount reflects genuine risk factors or simply an aggressive opening position.

Knowing where the market typically prices businesses like yours gives you the basis for an evidence-based negotiation rather than one based solely on the parties’ differing intuitions.

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EV/EBITDA is the language of professional business valuation. Understanding it—including its limitations and how to apply it to the specific realities of aviation businesses—puts you in a much stronger position whether you’re building, buying, or simply trying to understand what you’ve created.

If you’re working through a valuation question for an aviation operation—either to understand your business’s worth or to evaluate an acquisition—this is the kind of analysis where structured, sector-informed thinking changes the outcome of the conversation.