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Wiki: Earnings Before Interest And Taxes
In accountancy 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.
Formula
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).
Earnings before taxes
See also
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)
- EBITDA = earnings before interest, taxes, depreciation, and amortization
- OPEX = operating expense
Overview
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.
| + Example statement of income (figures in thousands) | |
| Sales revenue ! style="text-align:right;" | $20,438 |
| Cost of goods sold ! style="text-align:right;" | $7,943 |
| Selling, general and administrative expenses ! style="text-align:right;" | $8,172 |
| Depreciation and amortization ! style="text-align:right;" | $960 |
| Other expenses ! style="text-align:right;" | $138 |
| Total operating expenses | $9,270 |
| Non-operating income ! style="text-align:right;" | $130 |
| Financial income ! style="text-align:right;" | $45 |
| Financial expense ! style="text-align:right;" | $190 |
| ! style="text-align:right;" | $1,027 |
Earnings before taxes
See also
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