EBIT

(noun)

Earnings before interest and taxes. A measure of a business's profitability.

Related Terms

Examples of EBIT in the following topics:

  • Times-Interest-Earned Ratio

    • Times Interest Earned ratio (EBIT or EBITDA divided by total interest payable) measures a company's ability to honor its debt payments.
    • It may be calculated as either EBIT or EBITDA, divided by the total interest payable.
    • EBIT = Earnings Before Interest and Taxes, also called operating profit or operating income.
    • EBIT is a measure of a firm's profit that excludes interest and income tax expenses.
    • When a firm does not have non-operating income, then operating income is sometimes used as a synonym for EBIT and operating profit.

  • Basic Earning Power (BEP) Ratio

    • The Basic Earning Power ratio (BEP) is Earnings Before Interest and Taxes (EBIT) divided by Total Assets.
    • The BEP ratio is simply EBIT divided by total assets .
    • The distinction between EBIT and Operating Income is non-operating income.
    • However, in most cases, EBIT is relatively close to Operating Income.
    • The advantage of using EBIT, and thus BEP, is that it allows for more accurate comparisons of companies.

  • Leverage Models

    • Sales $400,000 Less Variable Costs (330,000) Less Fixed Costs (30,000) EBIT = $40,000 DFL = $40,000 / $40,000 - $6,000 - ($2,000 /0.80) DFL = 1.27
    • The DFL is calculated in relation to earnings before interest and taxes (EBIT).
    • We discount the amount of preferred dividends payed by the tax deductions brought about by those dividends and subtract the result and the cost of interest on debt from EBIT.
    • We then divide EBIT by the result of this calculation.

  • Combining Operating Leverage and Financial Leverage

    • Earnings can be measured in terms of EBIT, earnings before interest and taxes, or EPS, earnings per share.
    • While EBIT can be determined by referencing a company's income statement, we can determine earnings per share by dividing the company's net income by it's average price of common shares.

  • Free Cash Flow

    • Free cash flows = EBIT x (1 - Tax rate) + Depreciation & Amortization - Changes in Working Capital - Capital Expenditure

  • Financial Management Before and During Bankruptcy

  • Leverage Models

    • Another common way of defining operating leverage is by dividing total fixed costs by operating income, or EBIT (earnings before interest and taxes).

  • Ratio Analysis and EPS

    • Times interest earned ratio (Interest Coverage Ratio): EBIT / Annual interest expense