EV/EBIT Ratio (2024)

FAQs

EV/EBIT Ratio? ›

The EV/EBIT ratio compares a company's enterprise value (EV) to its earnings before interest and taxes (EBIT). EV/EBIT is commonly used as a valuation metric to compare the relative value of different businesses.

Typically, when evaluating a company, an EV/EBITDA value below 10 is seen as healthy. It's best to use the EV/EBITDA metric when comparing companies within the same industry or sector.

Generally, EV/Sales ratios range between 1 and 3. Anything at or below 1 will be considered a low ratio. Anything at or above a 3 would be regarded as quite high. However, it depends on the industry and the company's competitors, as previously stated.

The EV/EBITDA ratio compares a company's enterprise value to its earnings before interest, taxes, depreciation, and amortization. This metric is widely used as a valuation tool; it compares the company's value, including debt and liabilities, to true cash earnings.

Thus, EV/EBIT is often more reflective of a company's true financial strength. A secondary consideration is that the EBITDA num- bers we often find on websites tend to exclude important expenses that can vary among companies.

Key Takeaways

The higher the EBIT/EV multiple, the better for the investor as this indicates the company has low debt levels and higher amounts of cash. The EBIT/EV multiple allows investors to effectively compare earnings yields between companies with different debt levels and tax rates, among other things.

But while the EV/EBITDA multiple can come in useful when comparing capital-intensive companies with varying depreciation policies (i.e., discretionary useful life assumptions), the EV/EBIT multiple does indeed account for and recognize the D&A expense and can arguably be a more accurate measure of valuation.

A healthy EV/EBITDA ratio for a company is less than 10. It can also indicate that a stock may be undervalued. The average EV/EBITDA ratio for the S&P 500 as of January 2020 is 14.20.

Determining what constitutes a good or favorable EV/EBITDA ratio depends on various factors, including the industry in which the target company operates. A lower EV/EBITDA ratio suggests a company may be more attractive as a potential investment.

What is a Good EV/EBITDA Ratio? Generally, the lower the EV to EBITDA ratio, the more attractive the company may be as a potential investment.

What is the EV Ebitda ratio for Tesla? ›

As of 2024-04-07, the EV/EBITDA ratio of Tesla Inc (TSLA) is 38.2. EV/EBITDA ratio is calculated by dividing the enterprise value by the TTM EBITDA. Tesla's latest enterprise value is 525,172 mil USD. Tesla's TTM EBITDA according to its financial statements is 13,730 mil USD.

An EBITDA margin of 10% or more is typically considered good, as S&P 500-listed companies generally have higher EBITDA margins between 11% and 14%.

One drawback of the EV/EBITDA ratio is that it can produce an overly favorable number because it doesn't include capital expenditures, which for some companies can be a huge expense.

Conversely, a high EV/EBITDA ratio implies that the market values the company at a higher multiple of its earnings. This could indicate that the company is potentially overvalued, as investors are willing to pay a premium for the company's expected future earnings or growth prospects.

Different sectors can present very different average EBIT margins. Software companies can easily reach margins of 25%, and some manufacturers can even have a dazzling EBIT margin of 30 to 40%. On the other hand, even successful businesses in retail tend to lie in single figures.

As of 2024-04-07, the EV/EBITDA ratio of Tesla Inc (TSLA) is 38.2. EV/EBITDA ratio is calculated by dividing the enterprise value by the TTM EBITDA. Tesla's latest enterprise value is 525,172 mil USD. Tesla's TTM EBITDA according to its financial statements is 13,730 mil USD.

One advantage of the EV/EBITDA ratio is that it strips out debt costs, taxes, depreciation, and amortization, thereby providing a clearer picture of the company's financial performance.