Below is an EV/EBIT calculator, or Enterprise Value to Earnings Before Interest and Tax Calculator. Enter a company's market capitalization, debt, cash (and equivalents), net income, tax payments, and interest costs to compute its EV/EBIT.
Using the EV/EBIT Calculator
Using a company's annual or quarterly report, fill in the following fields to compute its EV/EBIT ratio.
- Market capitalization: The total number of outstanding shares of the company multiplied by their value per share.
- Total debt: All short and long-term debt and liabilities listed on the balance sheet.
- Cash and Cash Equivalents: The balance statement's total cash and cash equivalents.
- Net Income: The total net income from the income statement.
- Interest Expense: Interest costs to the company during this period.
- Tax Expense: The money the company spent on taxes.
Once done, hit the "Compute EV/EBIT" button to get the ratio (and the Enterprise Value and EBIT as well).
What is the EV/EBIT ratio?
EV/EBITDA, or the Enterprise Value to Earnings Before Interest, Tax, Depreciation, and Amortization ratio, is a valuation ratio comparing the total capitalization of a company, including any cash or debt, to a form of earnings which adjusts for interest payments and taxes through enterprise value.
EBIT adjusts a company's earnings to normalize for capitalization structure with interest and overall structure with taxes. Going a step further and adding back Depreciation and Amortization (respectively, a write-down of tangible and intangible property) would give you EBITDA – and allow you to compute the EV/EBITDA ratio.
Comparison with Price to Earnings
The Price to Earnings ratio is likely the most popular earnings ratio used for company and valuation comparisons. However, earnings are constrained by accounting principals – usually through GAAP or IFRS standards – and may conceal good (or bad) things happening below the surface in a company. Adjustments like EBIT – which adds back interest costs and taxes – can reveal to a purchaser or investor efficiencies that can be unlocked in a firm.
Additionally, price is based on market capitalization. In EV/EBIT, both the numerator (in total debt) and denominator (in interest payments) factor in debt to a company's valuation, resolution missed in a simple P/E ratio.
However, EV/EBIT – like all adjusted earning metrics – can be dangerous if you do too much adjusting. Always be careful and understand what you're looking at with any valuation ratio.