understanding financial jargon
Enterprise Value to EBIT Ratio (EV/EBIT)
The ratio of Enterprise Value to Earnings Before Interest and Tax is a way of determining if the share price of a company is cheap relative to its peers or the wider market. It is similar to the common Price Earnings Ratio but modified to take account some of PER's weaknesses.
For example using the firms share price ignores debt, whereas using enterprise value includes debt. The EV value is then compared with earnings before, rather than after tax and interest.
This means that EV/EBIT measures the companies operating profitability (which it can control) but excludes those items such as tax which the company can't control. However as with all ratios it shouldn't be used in isolation.
What to do if you need more help
If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.
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