EV/EBIT compares enterprise value to earnings before interest and taxes, providing insight into operational profitability.
The EV/EBIT ratio is similar to EV/EBITDA but uses EBIT instead, which includes depreciation and amortization. This makes it more conservative and better for comparing companies with significantly different capital intensity levels. EBIT represents true operating profit after accounting for the cost of maintaining and replacing assets through depreciation.
Using the same example as EV/EBITDA but with EBIT of $1.5B (after D&A): EV/EBIT = $11B / $1.5B = 7.3x.
An EV/EBIT above 20x suggests high growth expectations or premium valuation. Common in asset-light businesses with low depreciation.
An EV/EBIT below 8-10x might indicate undervaluation or expectations of declining profitability.
Mature companies often trade at EV/EBIT of 10-15x, but this varies by industry and growth prospects.
