Earnings before interest and taxes

In accounting and finance, '''earnings before interest and taxes''' ('''EBIT''') is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses.<ref name="Essentials">{{cite book | title=Essentials of Investments | url=https://archive.org/details/isbn_9780072503678 | url-access=registration | first1=Verdrell | last1=WyattSR | first2=Verdrell | last2=WyattSR | first3=DRELL | last3=WYATT | publisher=McGraw Hill | year=2020

| page=[https://archive.org/details/isbn_9780072503678/page/452 452] | isbn=9780072510775}}</ref><ref>{{Cite web|url=https://www.nasdaq.com/glossary/e/earnings-before-interest-and-taxes|title=Earnings before interest and, taxes (EBIT)|publisher=NASDAQ}}</ref>

'''Operating income''' and '''operating profit''' are sometimes used as a synonym for EBIT when a firm does not have non-operating income and non-operating expenses.<ref name="investopedia">{{Cite web|url=https://www.investopedia.com/ask/answers/012015/what-difference-between-ebit-and-operating-income.asp|title=How are EBIT and operating income different?|first=Chris B.|last=Murphy|date=2019-07-11|publisher=Investopedia}}</ref>

== Formula == *EBIT = (net income) + interest + taxes = EBITDA – (depreciation and amortization expenses) *Operating income = (gross income) – OPEX = EBIT – (non-operating profit) + (non-operating expenses)<ref name="investopedia" /> where *EBITDA = earnings before interest, taxes, depreciation, and amortization *OPEX = operating expense

== Overview == A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings before interest, taxes, depreciation and amortization (EBITDA) and EBIT), and then determines the optimal use of debt versus equity (equity value).

To calculate EBIT, expenses (e.g. the cost of goods sold, selling and administrative expenses) are subtracted from revenues.<ref>{{cite web|url=http://www.investorwords.com/1631/EBIT.html|title=What is EBIT? definition and meaning|website=investorwords.com|access-date=2019-10-03}}</ref> Net income is later obtained by subtracting interest and taxes from the result.

{| class="wikitable" |+ Example statement of income (figures in thousands)<ref name="Essentials"/> |- ! style="text-align:left;background-color:#ffd700;" colspan="2"| Revenue |- | style="padding-left:2.0em;" | Sales revenue ! style="text-align:right;" | $20,438 |- | style="padding-left:2.0em;" | Cost of goods sold ! style="text-align:right;" | $7,943 |- ! style="text-align:left;" | Gross profit ! style="text-align:right;" | $12,495 |- ! style="text-align:left;background-color:#c0c0c0;" colspan="2"| Operating expenses |- | style="padding-left:2.0em;" | Selling, general and administrative expenses ! style="text-align:right;" |$8,172 |- | style="padding-left:2.0em;" | Depreciation and amortization ! style="text-align:right;" |$960 |- | style="padding-left:2.0em;" | Other expenses ! style="text-align:right;" |$138 |- | style="background-color:#cc9966; font-weight:bold;padding-left:2.0em;text-align:left;" | Total operating expenses | style="background-color:#cc9966; font-weight:bold;text-align:right;" | $9,270 |- ! style="text-align:left;" | Operating profit ! style="text-align:right;" | $3,225 |- | style="padding-left:2.0em;" | Non-operating income ! style="text-align:right;" |$130 |- ! style="text-align:left;" | Earnings before interest and taxes (EBIT) ! style="text-align:right;" | $3,355 |- | style="padding-left:2.0em;" | Financial income ! style="text-align:right;" |$45 |- ! style="text-align:left;" | Income before interest expense (IBIE) ! style="text-align:right;" | $3,400 |- | style="padding-left:2.0em;" | Financial expense ! style="text-align:right;" |$190 |- ! style="text-align:left;" | Earnings before income taxes (EBT) ! style="text-align:right;" | $3,210 |- | style="padding-left:2.0em;" | Income taxes ! style="text-align:right;" |$1,027 |- ! style="background-color:#9acdff;text-align:left;" | Net income ! style="background-color:#9acdff;text-align:right;" | $2,183 |}

== Earnings before taxes == '''Earnings before taxes''' ('''EBT''') is the money retained by the firm before deducting the money to be paid for taxes. EBT excludes the money paid for interest. Thus, it can be calculated by subtracting the interest from EBIT (earnings before interest and taxes).

==References== {{Reflist}}

Category:Fundamental analysis Category:Profit