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Explanation of Earnings Before Interest and Tax. EBIT.


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What is EBIT?

Earnings Before Interest and Tax includes all profits from operations, before interest and income taxes are deducted. Normally, non-operating profits and non-operating expenses are not included in EBIT. Earnings Before Interest and Tax (EBIT) is a traditional measurement method that does not include the cost of capital. Other words for EBIT are Operating Profit and Operating Earnings.

Calculation of EBIT

The formula of EBIT is straightforward:

      Net Sales

-     Operating Expenses


      Operating Profit (EBIT)

An advantage of EBIT is it is easy to calculate and observe at divisional or sub divisional levels of the firm.

A disadvantage of EBIT is it does not include the cost of capital. Compare EVA, CFROI and Economic Margin, which are all including the cost of capital.

Instead of EBIT, also the terms Operating Profit and Operating Earnings are widely used.

Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide -

Book: Ciaran Walsh - Key Management Ratios -

Earnings Before Interest and Tax Forum (8 topics) Help
  What is Consolidated Operating Income (COI)?  - Several days ago I met this term "COI", then I tried to find some information, but I couldn't find it. If someone has information or can explain, please reply. Thanks in advance......      
  Thrid Party Share and Participations in EBIT?  - Turning around the definition: Net Profit + Interest + Tax = EBIT.
What about the third party share and income from participations? Include or exclude from EBIT?...
  EBIT and Operating Leverage  - Finding the EBIT is very important because it will tell you how's the company used their fixed cost in operations. In other words it will help you determine the company's degree in operating leverage....      
  EBIT and DIrect and Indirect Expenses  - Does EBIT include all the direct & indirect expenses of the unit?...      
  Measuring Financial Performance  - What are the most important tools while evaluating the financial performance of the company?...      
  EBIT Before of After End of Year  - When do we earn more: if we declare dividend before finishing of year or if we declare it after at the end of the year?...      
  EBIT/(Funded Debt+Net Worth)  - The criticality of this measure in relation to the interest on funded debt. Does this measure how much of negative leverage the equity holders can bear?...      
  What is Return on Sales? Definition  - Also the term Return on Sales is often used to indicate EBIT, Operating profit, or Operating Earnings....      

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Compare with:  EBITDA  |  P/E Ratio  |  PEG Ratio  |  Relative Value of Growth  |  Economic Value Added  |  Economic Margin  |  Cash Ratio  |  Current Ratio  |  Earnings Per Share  |  Return on Equity  |  Return on Invested Capital  |  Market Value Added  |  CFROI  |  Fair Value  |  TSR

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