Earnings Before Interest & Tax - EBIT
An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating income", as you can re-arrange the formula to be calculated as follows:
| EBIT = | Revenue - Operating Expenses |
Investopedia Commentary
In other words, EBIT is all profits before taking into account interest payments and income taxes. An important factor contributing to the widespread use of EBIT is the way in which it nulls the effects of the different capital structures and tax rates used by different companies. By excluding both taxes and interest expenses, the figure hones in on the company's ability to profit and thus makes for easier cross-company comparisons.
EBIT was the precursor to EBITDA, which takes the process further by removing two non-cash items from the equation (depreciation and amortization).
Related Links
EBITDA: The Good, The Bad, And The Ugly
Understanding The Income Statement
Advanced Financial Statement Analysis
See also: Amortization, Depreciation, Earnings, Earnings Before Interest, Tax, and Depreciation - EBITD, Earnings Before Interest, Taxes, Depreciation, and Amortization - EBITDA, Earnings Before Tax - EBT, EBITDAX, Expenses, Non-Cash Charge, Revenue
Also spelled: Operating profitsEBIT