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EBIT

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Summary

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


Special Interest Group

Earnings Before Interest and Tax Special Interest Group.


Special Interest Group
Special Interest Group (41 members)

Forum

Forum discussions about Earnings Before Interest and Tax. Below you can ask a question about this topic, share your experiences, report a new development, or explain something.


topic 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?...
Rating6
 
Comments1 comments
topic 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?...
Rating5
 
Comments1 comments
topic What is Return on Sales? Definition
Also the term Return on Sales is often used to indicate EBIT, Operating profit, or Operating Earnings....
Rating5
 
Comments1 comments
topic 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....
Rating4
 
Comments1 comments
topic EBIT and DIrect and Indirect Expenses
Does EBIT include all the direct & indirect expenses of the unit?...
Rating4
 
Comments2 comments
🔥 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......
Rating3
 
Comments2 comments

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Subject

What are the Indicators of High Quality of Earnings?

Analyzing Reported Earnings
The term quality of earnings usually refers to the degree of conservatism in a firm’s reported earnings. Indicators of h...
Subject

What is the Degree of Management Discretion or Manipulation?

Analyzing Reported Earnings
The discretionary nature of income recognition permits an examination of the degree of management manipulation of earnin...
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3 Minute Introduction to Financial Ratio Analysis: Why do it and What are the Main Types?

Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types
Why financial ratio analysis? 1. To compare the financial health of (similar) companies (which one is doin...

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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


Return to Management Hub: Decision-making & Valuation  |  Finance & Investing


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