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Earnings before interest and taxes

Measure of a firm's profit

Measure of a firm's profit

In accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses.{{cite book | url-access=registration

Operating income and operating profit are sometimes used as a synonym for EBIT when a firm does not have non-operating income and non-operating expenses.

Formula

  • EBIT = (net income) + interest + taxes = EBITDA – (depreciation and amortization expenses)
  • Operating income = (gross income) – OPEX = EBIT – (non-operating profit) + (non-operating expenses) where
  • EBITDA = earnings before interest, taxes, depreciation, and amortization
  • OPEX = operating expense

Overview

A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings before interest, taxes, depreciation and amortization (EBITDA) and EBIT), and then determines the optimal use of debt versus equity (equity value).

To calculate EBIT, expenses (e.g. the cost of goods sold, selling and administrative expenses) are subtracted from revenues. Net income is later obtained by subtracting interest and taxes from the result.

Revenue$20,438$7,943Gross profit$12,495Operating expenses$8,172$960$138Operating profit$3,225$130Earnings before interest and taxes (EBIT)$3,355$45Income before interest expense (IBIE)$3,400$190Earnings before income taxes (EBT)$3,210$1,027Net income$2,183
Sales revenue
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Other expenses
Total operating expenses$9,270
Non-operating income
Financial income
Financial expense
Income taxes

Earnings before taxes

Earnings before taxes (EBT) is the money retained by the firm before deducting the money to be paid for taxes. EBT excludes the money paid for interest. Thus, it can be calculated by subtracting the interest from EBIT (earnings before interest and taxes).

References

References

  1. "Earnings before interest and, taxes (EBIT)". [[NASDAQ]].
  2. Murphy, Chris B.. (2019-07-11). "How are EBIT and operating income different?". [[Investopedia]].
  3. "What is EBIT? definition and meaning".
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