EV/EBIT

What it is\nEV/EBIT compares the market's total value of a business (equity + debt − cash) to its operating earnings before interest and taxes. Lower = cheaper.\n\n## Why it's better than P/E\nPrice/Earnings is contaminated by capital structure: a company that takes on more debt mechanically lowers its earnings (interest expense) and its share price (more leverage), and the ratio moves in unpredictable ways. EV/EBIT strips that out — it's the same answer whether the business funded itself with $100 of equity or $50 equity + $50 debt.\n\n## How to use it\n- Cheap: EV/EBIT < 8 — usually means either a bargain or a value trap\n- Fair: 8–15 — most healthy businesses\n- Expensive: 15–25 — premium quality usually deserves it\n- Watch out: > 25 — pricing in significant growth that has to actually materialise\n\n## Greenblatt's Magic Formula\nJoel Greenblatt's "Magic Formula" ranks stocks by a combination of high ROIC + low EV/EBIT. The full strategy is in The Little Book That Beats the Market. Backtests show it materially outperforms the index over 17+ years.