Earnings Before Interest and Taxes (EBIT)
The financial accounting term earnings before interest and taxes, or EBIT, is another name for operating income. Found in the company’s income statement, earnings before interest and taxes are a measure of a company’s ability to generate profits on an ongoing basis.
Earnings Before Interest and Taxes = Revenue – Operating Expenses + Non-Operating Income
As the name implies, income taxes and interest payments are excluded from this calculation of profitability. The measure also excludes income and expenses that are considered extraordinary, “unusual,” one-time events, or costs and profits from discontinued operations.
Creditors are interested in metrics such as EBIT, since it’s an indicator of the company’s ability to generate enough cash to repay loans.
Company A’s income statement indicates revenues of $29,611,000, costs of goods sold of $15,693,000 and other operating expenses of $7,740,000. Company A did not have any discontinued operations, non-recurring events or extraordinary items. The earnings before interest and taxes are:
= $29,611,000 – $15,693,000 – $7,740,000, or $6,178,000