EBIT

EBIT is an acronym that stands for Earnings Before Interest and Taxes. As the title implies, EBIT is a measure of a company's profitability excluding interest and income tax expenses.

EBIT

EBIT is an acronym that stands for Earnings Before Interest and Taxes. As the title implies, EBIT is a measure of a company's profitability excluding interest and income tax expenses. Operating income is the difference between operating revenues and operating expenses. When a firm has no non-operating income, then operating income is often used in place of EBIT and operating profit.


EBIT Formula

EBIT is calculated by subtracting expenses (e.g., the cost of goods sold, selling and administrative expenses) from revenues.

EBIT Interpretation

EBIT allows an investor to see where a particular company stands relative to others in the same industry, and to directly compare the profitability of two or more companies including the ability to compare companies that have different tax and financial structures.  The larger the value of EBIT, the more profitable a company is likely to be.  

By eliminating tax and interest, different accounting techniques are less likely to adversely affect a more equitable comparison of companies. This allows an investor to better understand how efficiently each company operates and to determine which is the most profitable, despite any structural or procedural differences.

EBIT is used to establish a company's ability to earn a profit.  However, EBIT should not be the only tool used when evaluating companies. A seemingly promising company may be a poor investment choice if only the EBIT number is considered. Other things to look at include EBITDA, operating profit alone, and return on total assets (ROTA).

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