Indian Company Master Data Made Simple

EBIT - Earnings Before Interest and Taxes

3 min read

Quick Summary

EBIT represents operating profit and shows how much a company earns from its core operations before paying interest on debt and taxes.

EBIT (Earnings Before Interest and Taxes), also known as operating profit or operating income, measures a company's profitability from its core business operations before accounting for interest and tax expenses.

EBIT Formula

EBIT = Revenue - Cost of Goods Sold - Operating Expenses

Or

EBIT = Net Income + Interest + Taxes

Example

If a company has:

  • Revenue: ₹100 lakhs
  • Cost of Goods Sold: ₹60 lakhs
  • Operating Expenses: ₹20 lakhs

Then EBIT = ₹100 - ₹60 - ₹20 = ₹20 lakhs

Why EBIT Matters

  • Shows operational efficiency independent of financing decisions
  • Useful for comparing companies with different capital structures
  • Indicates core business profitability
  • Used in various financial ratios

Key Points

  • Also called Operating Profit
  • Excludes interest and tax expenses
  • Shows core business profitability
  • Useful for cross-company comparisons
  • Higher EBIT indicates better operational efficiency

Frequently Asked Questions

What is the difference between EBIT and Operating Profit?

Why exclude interest and taxes from EBIT?