EV/EBIT Ratio

The EV/EBIT ratio divides enterprise value by operating income (EBIT). It is a stricter alternative to EV/EBITDA, including the cost of depreciation and amortization. A lower EV/EBIT can signal either cheaper valuation or a company with newer, more rapidly depreciating assets.

The intuition behind the ratio

EV/EBIT subtracts depreciation and amortization from the numerator (compared to EV/EBITDA). This makes it more conservative. A company with rapid D&A will have lower EV/EBIT than EV/EBITDA.

EV/EBIT is useful for comparing companies with different asset ages. An old company with little D&A will have lower EV/EBIT than a young company with identical EBITDA, purely because the old company has already depreciated its assets.

How to calculate it

Enterprise value ÷ EBIT (operating income).

When it works well

Comparing asset ages. Two companies with identical EBITDA but different D&A have different EV/EBIT. This makes the ratio sensitive to capital structure.

More conservative valuation. EV/EBIT is more conservative than EV/EBITDA because it deducts actual (non-cash) depreciation.

Comparing capital intensity. A capital-intensive company will have higher D&A and therefore lower EV/EBIT relative to EBITDA.

When it breaks down

D&A varies by accounting method. Accelerated depreciation vs. straight-line makes comparisons difficult.

It ignores the cash component of D&A. Depreciation is non-cash; the actual cash spend was in the past when assets were bought.

It penalizes companies with valuable assets. A well-capitalized company with large asset bases gets penalized by high D&A in the denominator.

Using EV/EBIT in practice

Most investors use EV/EBIT alongside EV/EBITDA to understand asset composition:

• If EV/EBITDA is much higher than EV/EBIT, the company has high D&A (capital-intensive or young assets).
• If they are similar, D&A is minimal (asset-light or old assets).

See also