Market cap alone compares two companies unfairly
Two companies, each capitalised at 1,000. One has no debt and 100 in cash. The other has 500 of debt and no cash. Buying all the shares costs the same, but what you then own is not comparable: the second comes with 500 to repay.
Enterprise value adds net debt to account for it: 900 for the first, 1,500 for the second. If both earn the same operating profit, the first is the cheaper business — the opposite of what the market caps suggested. That is what EV/EBITDA and EV/Sales are for.
A company holding more cash than debt has an enterprise value below its market cap, because net debt is negative. The tool shows the debt share as a negative figure in that case: part of what the shares cost is the money already in the till.
Decide what counts as debt and stay with it
Total debt means interest-bearing liabilities: short-term borrowings, the current portion of long-term debt, bonds and long-term loans. Trade payables and accruals are liabilities but not debt, and they belong to the working-capital question instead.
A few items are judgement calls. Lease liabilities have sat on the balance sheet since 2019 and carry an interest element, so they are usually included. Pension obligations and provisions divide opinion. What matters is applying one rule to every company compared: including leases for one of them inflates only that one's EV.
The same goes for the cash side: cash and equivalents only, or short-term investments as well. A broader definition of cash lowers the EV and makes every multiple look cheaper.
What EBITDA leaves out
EBITDA is operating income plus depreciation and amortisation, on the argument that those are not cash costs and the result is closer to what the business generates. It is useful for comparing companies with different asset bases.
But depreciation is not a cash cost only because the asset was paid for earlier. It wears out and has to be replaced. For a company with sustained capital expenditure, EBITDA is far above the cash actually available, and a healthy EBITDA alongside persistently negative free cash flow is usually that gap.
Where EBITDA is negative the multiple does not apply, and this tool withholds it. A figure of −4× does not mean cheap; it means the measure is not usable yet, and printing it invites exactly the wrong reading.