EV/EBIT
EV/EBIT
Enterprise value divided by operating income. Like EV/EBITDA but after depreciation, so it charges the business for the capital it consumes; the better multiple for asset-heavy companies.
When to use: Use to compare capital-intensive businesses, where EBITDA flatters companies whose assets wear out quickly. A lower multiple is cheaper, all else equal.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| EVtoEBIT | EV/EBIT | Enterprise value to operating income multiple | integer |
| MarketCap | Market Cap | Equity market capitalization | $ |
| Debt | Total Debt | Interest-bearing debt | $ |
| Cash | Cash & Equivalents | Cash and short-term investments | $ |
| EBIT | EBIT | Earnings before interest and taxes (operating income) | $ |
Real-Life Examples
Example 1: Leveraged Industrial
Market cap $5,000M, debt $2,000M, cash $500M, EBIT $500M.
Given
Step-by-Step
13x operating income. The same company is 8.7x EBITDA; the gap between the two multiples is the depreciation charge, which is why EV/EBIT is the stricter test for heavy industry.
Example 2: Cash-Rich Growth Company
Market cap $12,000M, debt $1,000M, cash $3,000M, EBIT $1,250M.
Given
Step-by-Step
Net cash lowers EV, so the multiple is 8x despite a $12B market cap. Comparing on market cap alone would overstate how expensive the business is.
Frequently Asked Questions
EBITDA ignores depreciation, which is a real cost for businesses that must keep replacing assets. EV/EBIT counts it. For asset-light businesses the two multiples are close; for asset-heavy ones EV/EBIT is more honest.