EV to EBIT ratio

The EV to EBIT ratio divides a company's enterprise value by its operating income. Like EV to EBITDA, it values the whole company, equity plus net debt, against a measure of core operating profit, which makes it useful for comparing companies with different capital structures since the metric isn't affected by how much debt versus equity a company uses to fund itself.

The formula is:

The key difference from EV to EBITDA is that EBIT already includes depreciation and amortization as expenses, while EBITDA adds them back. That makes EV to EBIT the more conservative and often more realistic multiple for capital-intensive businesses, manufacturers, industrials, and any company that has to keep spending on equipment and infrastructure just to maintain its current level of output. EBITDA can make such a company look cheaper than it really is by ignoring a real, recurring cost of staying in business, while EBIT captures that cost.

A lower EV to EBIT ratio suggests a company is cheaper relative to its operating profit, and a higher ratio suggests investors are paying more for each dollar of that profit, but as with any multiple it should be compared against similar companies in the same industry rather than judged as cheap or expensive in isolation. It's especially useful alongside EV to EBITDA when comparing companies with meaningfully different levels of depreciation and amortization, since relying on EBITDA alone in that situation can flatter the more asset-heavy business.