EV/EBIT
Enterprise value divided by profit before interest and tax: a valuation that keeps depreciation in, unlike the ratio to profit before it.
Formula
EV/EBIT = \frac{\text{Enterprise value}}{EBIT}The denominator is taken over a trailing year. Negative profit makes the ratio unreadable, and it is then not calculated.
How to read the number
Fairer to capital-intensive businesses: for them wear and tear is a real future cost that cannot be ignored.
When the metric lies
Depreciation depends on the useful lives chosen in the accounts, and those differ between companies. The measure is therefore sensitive to accounting policy.
Also known as: enterprise value to ebit