Definition
EBIT (Earnings Before Interest and Tax)
EBIT is a company's operating profit, calculated as earnings before interest and tax are deducted, measuring profitability from core operations.
EBIT, also called operating profit, captures how much a business earns from operations before the effects of its capital structure (interest) and taxes. It allows comparison of operating performance across companies with different debt levels and tax positions.
EBIT differs from EBITDA by including depreciation and amortisation, so it reflects the cost of using long-lived assets. The interest coverage ratio, EBIT divided by interest expense, uses EBIT to gauge how comfortably a firm can service its debt.
Related terms
- EBITDAEBITDA is earnings before interest, tax, depreciation, and amortisation, a measure of a company's core operating profitability.
- Operating MarginOperating margin is the percentage of revenue left as operating profit after deducting the costs of running the core business.
- Profit After Tax (PAT)Profit After Tax is a company's net profit remaining after all expenses, interest and taxes have been deducted, the bottom line of the income statement.
- Interest Coverage RatioThe interest coverage ratio measures how many times a company's operating profit covers its interest expense, indicating its ability to service debt.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.