An Analytical Approach to Comparing Actual Vs. Fundamental “Enterprise Value-to-EBITDA” Ratios on the US and European Stock Markets
DOI:
https://doi.org/10.37075/FABA.2025.2.08Keywords:
US and European stock markets, actual EV/EBITDA multiples, fundamental EV/EBITDA ratiosAbstract
Purpose: The subject of this research paper is the level of the EV/EBITDA market ratios on the US and the European stock markets. The interest was aroused by the continuously rising levels of the indexes on the leading stock markets, on one hand, and the very wide use of the EV/EBITDA multiples by financial analysts, on the other hand. The purpose is: 1/ to compare the two markets in terms of their actual EV/EBITDA ratios, and 2/ to analyze to what extent the levels of these multiples are supported by the respective key fundamental indicators.
Design/Methodology/Approach: The dynamics of the actual EV/EBITDA ratio in recent years is reviewed for each of the US and European developed stock markets. In addition to the comparison of these ratios between the two markets, fundamental EV/EBITDA ratios are also derived, based on key financial-performance indicators, in order to be used as a more reasonable benchmark.
Findings: The comparison indicates that the actual average EV/EBITDA of the US market for the analyzed period is by 38% higher than that of the European market. For both markets, the derived fundamental EV/EBITDA ratios do not support the significantly higher actual EV/EBITDA multiples, which are about twice as high. This difference is more pronounced for the US market.
Practical Implications: The important implications for investors are that the actual average EV/EBITDA levels on the US and European stock markets indicate for an unreasonably high prices of stocks as a whole for 2024.
Originality/Value: The analyses of this type, involving not only actual but also fundamental market ratios, seem to be quite limited among academic publications. To the extent that they are available for the market as a whole, they mainly focus on the PE and PBV ratios. The in-depth academic study of the EV/EBITDA multiples, with regard to using them for the analysis of the entire stock market, is still not a well-covered area.
Paper Type: Research Paper
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