EBIT/Enterprise Value
factor.formula
EBIT/EV calculates the ratio of earnings before interest and taxes generated by a company relative to its enterprise value, reflects the profitability of the company's assets and can be used for valuation assessment.
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Earnings before interest and taxes measure the profitability generated by a company's operating activities and are not affected by financing methods and tax policies.
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Enterprise value represents the cost required to acquire the entire enterprise, including the value of equity and debt.
factor.explanation
The EBIT/Enterprise Value ratio is a classic value-based indicator used to assess the profitability of a company relative to its total value. The higher the ratio, the more likely it is that the company's value is underestimated by the market, because investors can buy higher profitability at a lower "total cost." Conversely, if the ratio is low, it may mean that the company's value is overestimated. In practical applications, this ratio is usually compared with the same industry or historical levels to determine the valuation level of the company. In addition, since this ratio excludes the impact of different capital structures and tax policies on profitability, it is also suitable for cross-industry value comparisons. It should be noted that this indicator cannot be used alone, but must be analyzed in conjunction with other financial indicators and industry backgrounds.