what is the ebit ev multiple 
the ebit ev multiple shorthand for earnings before interest and taxes ebit divided by enterprise value ev is a financial ratio used to measure a company s earnings yield the concept of the ebit ev multiple as a proxy for earnings yield and value was introduced by joel greenblatt a noteworthy value investor and professor at columbia business school understanding the ebit ev multipleenterprise value ev is a measure used to value a company investors often use ev when comparing companies against one another for possible investment because ev provides a clearer picture of the real value of a company as opposed to simply considering market capitalization ev is an important component of several ratios investors can use to compare companies such as the ebit ev multiple and ev sales the ev of a business can be calculated using the following formula the ev result shows how much money would be needed to buy the whole company some ev calculations include the addition of minority interest and preferred stock however for the vast majority of companies minority interest and preferred stock in the capital structure is uncommon thus ev is generally calculated without them ebit ev is supposed to be an earnings yield so the higher the multiple the better for an investor there is an implicit bias toward companies with lower levels of debt and higher amounts of cash a company with a leveraged balance sheet all else being equal is riskier than a company with less leverage the company with modest amounts of debt and or greater cash holdings will have a smaller ev which would produce a higher earnings yield benefits of the ebit ev multiplethe ebit ev ratio can provide a better comparison than more conventional profitability ratios such as return on equity roe or return on invested capital roic while the ebit ev ratio is not commonly used it does have a couple of key advantages in comparing companies first employing ebit as a measure of profitability as opposed to net income ni eliminates the potentially distorting effects of differences in tax rates second using ebit ev normalizes for effects of different capital structures greenblatt states that ebit allows us to put companies with different levels of debt and different tax rates on an equal footing when comparing earnings yields in his eyes ev is more appropriate as the denominator because it takes into account the value of debt as well as the market capitalization a downside to the ebit ev ratio is that it does not normalize for depreciation and amortization costs thus there are still potential distorting effects when companies use different methods of accounting for fixed assets example of the ebit ev multiplesay company x has company z has ebit ev for company x would be approximately 7 7 while the earnings yield for company z would be approximately 4 4 company x s earnings yield is superior not only because it has greater ebit but also because it has lower leverage 