The EV / EBIT, EV / EBITDA and P / E multiples all measure a company’s profitability. What’s the difference between them, and when do you use each one?

Let’s just tick down these with examples.

EV / EBIT

So this is a minor deviation from the norm of EV / EBITDA as it uses EBIT, which is burdened by D&A.

You would do this in industries where D&A, CapEx and Fixed Assets play a larger role like energy or manufacturing.

EV / EBITDA

Ol’ reliable. Most companies use EV / EBITDA because most companies have irrelevant D&A values.

Price / Earnings

If you can’t use Enterprise Value capital structure-neutral, you would use a P / E ratio. Think back to our last section, banks that have negative EV would have to use P / E.