EV/EBIT ratio

Alternative names: enterprise multiple ev multiple ev to ebit earnings yield

What is EV/EBIT

The EV/EBIT ratio is valuation metric and is calculated as the ratio between enterprise value and earnings before interests and taxes. It compares the price of the company adjusting for cash, debt and other liabilities compared to the earnings. Its is similar to EV/EBITDA with the main difference being that EV/EBIT takes into account the depreciation and amortization.

The EV/EBIT is a similar to of P/E ratio (more advanced version of the PE ratio) but instead of market cap price it uses Enterprise value (EV). Investors often use EV when comparing companies against one another because EV provides a clearer picture of the real value of a company since incorporate leverage and cash in itself.

How to calculate EV/EBIT (formula)

The formula for calculating enterprise multiple is:

EV/EBIT = Enterprise Value / EBIT

Where EV or enterprise value is calculated as taking the equity value (market cap) plus its debt (total debt) less any cash and cash equivalents.

The EBIT stands for earnings before interests and taxes. It often used in valuation as a proxy for cash flow.

What is a good EV/EBIT number

Lower values for EV/EBIT can be indicative of the “cheapness” of a company compared with its peers. However it’s better when the enterprise multiple is used to compare companies within the same industry and sector as EV/EBIT multiple averages generally differ depending on the sector and industry.

Stocks with low EV/EBIT ratio

Name EV/EBIT Marketcap Industry
TCI Transcontinental Realty Investors Inc 1.03 $391.36M Real Estate Services
UBFO United Security Bancshares 1.17 $135.03M Banks - Regional
AXAS Abraxas Petroleum Corp 1.22 $93.5M Oil & Gas E&P
STCN Steel Connect Inc 1.24 $75.82M Integrated Freight & Logistics
ARL American Realty Investors Inc 1.32 $431.66M Real Estate - Development
AMR Alpha Metallurgical Resources Inc 1.32 $2.56B Thermal Coal
AOSL ALPHA & OMEGA SEMICONDUCTOR Ltd 1.36 $889.66M Semiconductors

Why is EV/EBIT important

The EV/EBIT is very similar to EV/EBITDA with the major difference between the two ratios is that EV/EBIT include depreciation and amortization in itself. It makes significant difference for capital-intensive businesses where depreciation is a big economic cost. However as most multiple it is important to keep in mind that this ratio does not take into account growth rates and growth potential of the business.

Related terms