Term · Valuation
EV/EBIT
In briefEV/EBIT relates enterprise value to operating earnings before interest and taxes. Because enterprise value includes debt, small caps with differing financing become more comparable.
Definition
Enterprise value divided by operating earnings before interest and taxes.
How it is calculated
Formula. EV = market capitalization + net debt (+ minority interests where applicable); EV/EBIT = EV ÷ EBIT.
Why it matters for small caps
In the small-cap segment, EV/EBIT is especially useful because companies become more comparable despite differing debt levels and capital structures.
Common misreadings
- It is often confused with the P/E ratio, even though EV/EBIT incorporates debt and the P/E ratio does not.
In the process
Frequently asked
What is the EV/EBIT ratio?
It is a valuation multiple that relates enterprise value to operating earnings. This allows an assessment of how high a business is valued relative to its operating earnings power.
What is EV/EBIT used for?
It is used to compare companies with different capital structures on a uniform basis. Since debt is included in enterprise value, the comparison is fairer than with the pure price-earnings ratio.
How does EV/EBIT differ from the P/E ratio?
The P/E ratio considers only equity and ignores debt. EV/EBIT incorporates financial debt and is therefore often confused with it, even though it captures more.
Related terms
Sources
Primary
NYU Stern – Aswath Damodaran, Valuation Resources
https://pages.stern.nyu.edu/\~adamodar/
https://pages.stern.nyu.edu/\~adamodar/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.