THE BEST COMPANIES AT THE BEST PRICE
1. WHAT YOU PAY: “Normalized” EBIT/Enterprise Value (What I pay or pre-tax earnings yield).
You would value EBIT higher if tax revenues are lower due to a permanent tax change. Take the
after-tax yield and see what the differences are. Is EBIT representative of true cash flow. EBIT is a
short hand for EBITDA – Maint. Capex. Different capitalization can skew net income. Differences
in tax rates. Using EBIT is a way to compare apples to apples.
2. WHAT YOU EARN: EBIT/(NWC + NFA) the denominator shows what I need to invest in the
business to get that EBIT. Don’t forget to normalize investment capital over the course of a year.
What I earn.
