Why use EV/EBIT multiple when compared companies in the asset intensive industry?
Hi, can anybody explain me that Why use EV/EBIT multiple when compared companies in the asset intensive industry?
I've read a interview question about this:
Question:'TheEV/EBIT,EV/EBITDA,andP/E multiples all measure a company's
profitability. What's the difference between them,and when do you use each one?'
Answer: P/E depends on the company's capital structure whereas EV/EBIT and EV/EBITDA are capital structure neutral. Therefore, you use P/E for banks, financial institutions,
and other companies where interest payments/expenses are critical.
EV/EBIT includes Depreciation&Amortization whereas EV/EBITDA excludes it – you're more likely to use EV /EBIT in industries where D&A is large and where capital expenditures and fixed assets are"important"(e.g."manufacturing), and EV/EBITDA in industries where fixed assets are"less"important"and where"D&A"is comparatively smaller(e.g."Internet"companies).
I know the difference between P/E and EV/EBIT (EV/EBITDA), but I don't know why we use EV/EBIT in asset intensive industry, rather than EV/EBITDA?
Can anyone help me with this?
Thank you very much (This question bother me for a long time)...