EV/EBIT

EV/EBIT is similar to EV/EBITDA, but it uses EBIT, which deducts depreciation and amortization. Because those charges reflect the cost of using up long-term assets, EV/EBIT gives a more complete picture of operating profitability for businesses that rely heavily on equipment, buildings or other physical assets.

For example, a company with an enterprise value of 2,300 million and EBIT of 180 million has an EV/EBIT multiple of about 12.8.

Like EV/EBITDA, EV/EBIT is not affected by how a company is financed, which makes it useful for comparing companies with different levels of debt.

Companies with large depreciation charges, such as manufacturers or transport companies, will show a bigger gap between their EV/EBITDA and EV/EBIT multiples than asset-light businesses, such as software companies. Some investors prefer EV/EBIT because depreciation approximates the investment needed to maintain the business. However, depreciation methods can differ between companies and countries, which can affect comparisons.