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
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
expenses.
Operating income and operating profit are sometimes used as a
synonym
A synonym is a word, morpheme, or phrase that means exactly or nearly the same as another word, morpheme, or phrase in a given language. For example, in the English language, the words ''begin'', ''start'', ''commence'', and ''initiate'' are al ...
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.
is later obtained by subtracting interest and taxes from the result.
Earnings before taxes
Earnings before taxes (EBT) is the money retained by the firm before deducting the money to be paid for
taxes
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...
. EBT excludes the money paid for
interest. Thus, it can be calculated by subtracting the interest from EBIT (earnings before interest and taxes).
See also
*
Earnings before interest, taxes, and amortization (EBITA)
*
Earnings before interest, taxes, and depreciation
A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, pronounced , , or ) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, stat ...
(EBITD)
*
Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR)
*
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
*
EV/EBITDA
*
Operating income before depreciation and amortization (OIBDA)
References
{{Reflist
Fundamental analysis
Profit