Define: Earnings Before Interest

UK Accounting Glossary

Definition: Earnings Before Interest



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Full Definition of Earnings Before Interest


Earnings before interest and pretax operating income and pretax operating profit are the same. Earnings before interest is revenue less after-tax operating expenses. Earnings before interest can be calculated by subtracting cost of sales and selling, general and administrative expenses and taxes from sales. Earnings before interest and taxes, or EBIT, measures a company’s earning power from ongoing operations making comparisons across time frames or between companies easier. Earnings before interest in this same manner measures the after-tax operating profit of a company’s after-tax cash flow for the same purpose but without the additional tax-neutralized feature. Like EBDITA, earnings before interest is accounting neutral: earnings before interest lets investors compare the profitability of companies with different accounting treatments and the same tax rates. Earnings before interest is finance-neutral with respect to interest charges. Earnings before interest is core recurring profit before other charges are added back to in order to calculate EBITDA. Earnings before interest multiples are often used with EBDITA multiples. For example, EBDITA/interest expense might be 2.5x while EBIT/interest expense was 1.5x and earnings before interest were 1.2x.


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Earnings Before Interest. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/earnings-before-interest/ (accessed: March 30, 2020).
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Earnings Before Interest. PayrollHeaven.com. Retrieved March 30, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/earnings-before-interest/

Definition Sources


Definitions for Earnings Before Interest are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 9th February 2020.