EBITDA Multiples
EBITDA multiples are calculated using Purchase Price / EBITDA. So, if a business was purchased for $200 and had EBITDA of $10, this would be a 20.0x multiple.
EBITDA multiples are the most common mode of valuation. The reason they’re used is that they represent the most pure operational profit. The items below EBITDA are subject to change post-transaction and vary widely between companies, so something like EBIT, EBT or Net Income are not commonly accepted bidding bases. So, EBITDA is market standard.
In the room
EV/EBITDA is the default valuation language in banking. Beyond the formula, be ready to explain why multiples differ between companies — growth, margin profile, scale, industry — because "why does this company trade at a premium?" is a common follow-up.