EV/EBIT

How to read it

The numerator is enterprise value: market value, from the stock price times the weighted basic share count, plus long-term debt and the current part of debt, minus cash and short-term investments, all from the latest quarter. The denominator is EBIT over the trailing twelve months. A lower value means less is paid for each dollar of operating profit. A rising price or more debt pushes the ratio up; growing EBIT or a larger cash pile brings it down. Because debt is included, it compares companies financed in different ways more evenly than a price-only multiple.

What is typical

Businesses with steady, growing operating profit tend to trade at higher multiples, while cyclical or slow-growing ones usually sit lower. Companies with heavy depreciation show higher values than their cash earnings might suggest, since EBIT is taken after it. Compare with the median for the company’s sector.

Pitfalls

stockrow shows the value as zero when the result is negative, which happens when EBIT is a loss or cash exceeds market value plus debt; a zero is not a bargain. It is worked out for every trading day from the latest reported figures on or before that day, so debt, cash and EBIT can lag the price by months. Quarterly and annual values are the daily value on the first trading day on or after each period end.