Business, Legal & Accounting Glossary
An abbreviation for “earnings before interest and tax.” Net income before income tax expense and interest expense is deducted.
In accounting and finance, earnings before interest and taxes (EBIT) (also known as operating profit) is a measure of a firm’s profit that includes all incomes and expenses except interest expenses and income tax expenses.
This is a common way to compare the earning power of companies because it eliminates the impact of capital structure and effective tax rates, two non-operating factors.
EBIT is an acronym for Earnings Before Interest and Taxes. EBIT is defined as the operating profit without deductions for taxes and interest payments. Investors looking at the fundamental values of companies may use EBIT to estimate earnings as it is easier to calculate than the standard measure. EBIT is also useful for gauging the profitability of different parts of conglomerates; with large debt loads and many divisions, it may not be clear which division is responsible for what debt. By removing the interest payment, EBIT may offer a cleaner analysis.
The even more refined EBITDA – Earnings Before Interest Taxes Depreciation and Amortization – was widely used during the high tech bubble of the 1990s. By understating expenses, EBITDA allowed unprofitable companies to look profitable.
When our company was reporting on its earnings, our directors focused largely on our EBIT, since they felt it was more representative of the companies overall performance.
Prudent investors always check the EBIT of a company before investing in them.
The company’s earnings before interest and taxes this year was the highest recorded since the company’s founding in 1932.
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This glossary post was last updated: 13th February, 2020 | 4 Views.