EV/EBIT Multiple

EBITDA adds back depreciation and amortization, treating them as non-cash and therefore ignorable. But D&A is a proxy for the capex a company must eventually spend to maintain its asset base — a manufacturer or telecom with billions in plant and equipment genuinely consumes that value over time. By keeping D&A in the denominator, EV/EBIT captures capital intensity, so a factory-heavy business will show a higher (more expensive-looking) EV/EBIT relative to its EV/EBITDA than an asset-light software firm will. This makes EV/EBIT the fairer apples-to-apples metric when capital intensity differs across your comp set. Both multiples use enterprise value, so both are unaffected by leverage — the difference is purely about how each treats fixed-asset costs.

Compute enterprise value (equity value plus net debt plus preferred plus minority interest, less cash and equivalents) and divide by EBIT. EBIT is operating income — revenue minus COGS minus operating expenses including D&A — taken from the income statement or built up as EBITDA minus D&A. Use the same period basis (LTM or NTM) consistently, and strip out non-recurring items from EBIT just as you would for any clean comp. Because both the numerator (EV) and denominator (EBIT, a pre-interest figure) exclude financing effects, the multiple is capital-structure neutral and comparable across differently levered firms.

EV/EBIT is preferred in capital-intensive sectors (industrials, manufacturing, transportation, telecom) and whenever D&A varies widely across peers. It's also the cleaner denominator for an unlevered, pre-tax operating view of the business. Its weakness mirrors EBITDA's strength: D&A is an accounting figure driven by historical cost and depreciation schedules, so it can differ between two economically similar companies that bought assets at different times or use different methods. For acquisition analysis, purchase accounting can inflate amortization (from acquired intangibles), distorting EBIT and the multiple — one reason some analysts revert to EV/EBITDA for deal-heavy comps.