A telecom company has a Market Capitalization of ₹8,000 Crore, Total Debt of ₹2,500 Crore, Cash & Equivalents of ₹500 Crore, and generates an annual EBITDA of ₹1,000 Crore. What is the firm's Enterprise Value (EV) and EV/EBITDA valuation multiple?

[ A ]Enterprise Value = ₹8,000 Crore; EV/EBITDA = 8.00x (Ignoring Net Debt)

[ B ]Enterprise Value = ₹10,000 Crore; EV/EBITDA = 10.00x [ EV = 8,000 + 2,500 - 500; EV/EBITDA = 10,000 / 1,000 ][ CORRECT ]

[ C ]Enterprise Value = ₹11,000 Crore; EV/EBITDA = 11.00x (Adding cash instead of subtracting)

[ D ]Enterprise Value = ₹2,500 Crore; EV/EBITDA = 2.50x

Takeaway

Option B is correct: Enterprise Value = ₹10,000 Crore; EV/EBITDA = 10.00x [ EV = 8,000 + 2,500 - 500; EV/EBITDA = 10,000 / 1,000 ]

Derivation

Enterprise Value represents the total cost of acquiring the operating business, which means adding the debt a buyer would assume and subtracting the cash they would immediately receive back. Net Debt = Total Debt − Cash = ₹2,500 Cr − ₹500 Cr = ₹2,000 Crore. Enterprise Value = Market Cap + Net Debt = ₹8,000 Cr + ₹2,000 Cr = ₹10,000 Crore. EV/EBITDA = ₹10,000 Cr / ₹1,000 Cr = 10.00x. This multiple is preferred over P/E for comparing companies with different debt loads precisely because it is capital-structure-neutral — a heavily indebted telecom firm and a debt-free peer with identical operating cash flows would show wildly different P/E ratios but comparable EV/EBITDA multiples once leverage is stripped out this way.

Why the others fail

A — Enterprise Value = ₹8,000 Crore; EV/EBITDA = 8.00x (Ignoring Net Debt)

Uses Market Capitalization alone as Enterprise Value, ignoring the ₹2,000 Crore of Net Debt the firm carries on top of its equity value.

C — Enterprise Value = ₹11,000 Crore; EV/EBITDA = 11.00x (Adding cash instead of subtracting)

Adds cash to Market Cap and Debt rather than subtracting it, which overstates Enterprise Value; cash should reduce, not increase, the acquisition cost.

D — Enterprise Value = ₹2,500 Crore; EV/EBITDA = 2.50x

States the Total Debt figure alone as if it were Enterprise Value, ignoring both the Market Capitalization and Cash components of the actual formula.