UK Accounting Glossary
Earnings before interest and taxes (EBIT) is an indicator of financial performance. Earnings before interest and taxes can be computed as Gross Revenue – (Cost of Goods Sold + Selling, General, and Administrative Expense). Some analysts focus on earnings before interest and taxes rather than actual earnings. They argue that, since interest-rate levels and tax policies are beyond a company’s control, earnings before interest and taxes is a better gauge of financial performance than actual earnings. Other analysts emphasize that interest and expense, while susceptible to outside forces, are expenses like any other; thus actual earnings should take precedence over earnings before interest and taxes. Note that earnings before interest and taxes is often called operating profit or recurring profit.
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This glossary post was last updated: 9th February 2020.