What is the 'EBIT/EV Multiple'
The EBIT/EV multiple is a financial ratio used to measure a company's return on investment. While the EBIT/EV ratio is not very commonly used, it does have certain advantages in comparing companies. First, using EBIT as a measure of profitability eliminates the potential distorting effects of differences in tax rates. Secondly, using EBIT/EV normalizes for the effects of different capital structures.
BREAKING DOWN 'EBIT/EV Multiple'
The EBIT/EV ratio can provide a better comparison than a more conventional net income/equity ratio. A downside to this ratio is that it does not normalize for depreciation and amortization costs. Thus, there are still potential distorting effects when companies use differing methods in accounting for fixed assets.