§ 01
MSFT — EV/EBITDA, Market Cap. Open MSFT on the Ledge to see current values.
§ 02
EV/EBITDA = Enterprise Value / EBITDA
§ 03
EV/EBITDA removes the effect of debt and tax differences. Two identical businesses with different debt levels will have different P/E ratios but similar EV/EBITDA.
§ 04
| Sector context | Typical EV/EBITDA range | What a low reading really means |
|---|---|---|
| Cyclicals (autos, steel, energy) | 5-8x | Often near peak earnings — could be expensive at the cycle top |
| Mature / utilities / staples | 8-12x | Fair for stable cash flows; below 8x may signal a structural decline |
| Quality compounders / consumer brands | 12-20x | Growth premium for moat and reinvestment runway |
| SaaS / high-growth software | 20-40x+ | Common for SaaS; below 20x may flag growth deceleration |
§ 05
There are no universal EV/EBITDA bands. A 6x reading in a structurally declining cyclical is a value trap; a 25x reading in mature SaaS is unremarkable. Always benchmark against sector peers and the company's own history.
§ 06
Compare the **EV/EBITDA** of a tech company (like MSFT) to an industrial company (like CAT). Why might they differ?
§ 07
§ 08
Stock A trades at 8x EV/EBITDA (declining cyclical, single-digit growth). Stock B trades at 22x EV/EBITDA (high-ROIC compounder, 15% growth, pricing power). On a risk-adjusted basis, which is cheaper?
Five questions · AI feedback
Sit with the ideas.
Company A has EV/EBITDA of 8x and Company B has 22x. Which is cheaper relative to its profits?
Why:
Try this in paper trading
DCF a stock — buy with margin of safety
Run a back-of-envelope DCF on a stock you've researched. Estimate fair value. Paper-buy ONLY if the current market price is at least 25% below your fair-value estimate. If it isn't, write down why you waited.
Open paper portfolio →Practice mode — simulated trades, not investment advice.