Metric · Valuation

EV/EBIT Explained

Q: What counts as an attractive EV/EBIT?

There's no universal threshold; value-oriented approaches often look for particularly low values relative to the market and industry average.

EV/EBIT relates enterprise value (company value including debt, minus cash) to operating profit (EBIT). Unlike the P/E ratio, EV/EBIT accounts for a company's capital structure, making it better suited for comparing companies with different debt levels.

Updated 20266 min read

Formula

EV/EBIT = Enterprise value ÷ EBIT

< 10Attractive valuation

10–15Moderate valuation

> 15High valuation

Guideline values, industry-dependent, illustrative

The formula in detail

The components of the formula at a glance.

Numerator

Enterprise value

Market cap plus debt, minus cash and equivalents.

Denominator

EBIT

Operating profit before interest and taxes.

Calculator

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Enterprise value (€m)EBIT (€m)

Result EV/EBIT

Moderate valuation

12.0

Low values point to an attractive valuation relative to operating earnings, regardless of how the company is financed.

Unlike the P/E ratio, EV/EBIT can be meaningfully compared between a highly leveraged company and a debt-free one.

As with the P/E ratio: comparing within the same industry gives the most meaningful results.

Used in these strategies

Acquirer's Multiple: EV/EBIT Deep ValueOne factor, applied ruthlessly: the cheapest operating business from an acquirer's view.Graham Net-NetsStocks below liquidation value: the hardest form of value investing.

Frequently asked questions

What is the difference between EV/EBIT and the P/E ratio?

The P/E ratio relates to the share price (equity only) and net income. EV/EBIT also includes debt and uses operating profit before interest. This makes companies with different capital structures more comparable.

What counts as an attractive EV/EBIT?

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Not investment advice. This explanation is for informational purposes only and does not constitute a recommendation to buy or sell securities.

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