Scribd Logo
Upload

Welcome to Scribd!

  • 41 views

    Earnings Before Interest and Taxes

    Uploaded by

    BOBBY212
    Earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses except interest expenses and income tax expenses. EBIT is calculated by taking a firm's net income and adding back interest and taxes. It can also be calculated by taking operating income and subtracting non-operating expenses plus non-operating income. EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, is similar but excludes depreciation and amortization expenses. Investors use EBIT and EBITDA to evaluate a firm's fundamental earnings potential and determine optimal capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Earnings Before Interest and Taxes

    Uploaded by

    BOBBY212
    41 views3 pages
    Earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses except interest expenses and income tax expenses. EBIT is calculated by taking a firm's net income and adding back interest and taxes. It can also be calculated by taking operating income and subtracting non-operating expenses plus non-operating income. EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, is similar but excludes depreciation and amortization expenses. Investors use EBIT and EBITDA to evaluate a firm's fundamental earnings potential and determine optimal capital structure.

    Original Title

    Earnings_before_interest_and_taxes

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses except interest expenses and income tax expenses. EBIT is calculated by taking a firm's net income and adding back interest and taxes. It can also be calculated by taking operating income and subtracting non-operating expenses plus non-operating income. EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, is similar but excludes depreciation and amortization expenses. Investors use EBIT and EBITDA to evaluate a firm's fundamental earnings potential and determine optimal capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views3 pages

    Earnings Before Interest and Taxes

    Uploaded by

    BOBBY212
    Earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses except interest expenses and income tax expenses. EBIT is calculated by taking a firm's net income and adding back interest and taxes. It can also be calculated by taking operating income and subtracting non-operating expenses plus non-operating income. EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, is similar but excludes depreciation and amortization expenses. Investors use EBIT and EBITDA to evaluate a firm's fundamental earnings potential and determine optimal capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    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.[1][2]

    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.[3]

    Formula
    EBIT = (net income) + interest + taxes = EBITDA – (depreciation and amortization expenses)
    operating income = (gross income) – OPEX = EBIT – (non-operating profit) + (non-operating
    expenses)[3]

    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.[4] Net income is later obtained by subtracting interest and taxes from the result.
    Example statement of income (figures in thousands)[1]
    Revenue
    Sales revenue $20,438

    Cost of goods sold $7,943

    Gross profit $12,495


    Operating expenses

    Selling, general and administrative expenses $8,172

    Depreciation and amortization $960


    Other expenses $138

    Total operating expenses $9,270

    Operating profit $3,225


    Non-operating income $130

    Earnings before interest and taxes (EBIT) $3,355

    Financial income $45


    Income before interest expense (IBIE) $3,400

    Financial expense $190

    Earnings before income taxes (EBT) $3,210


    Income taxes $1,027

    Net income $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).

    See also
    Earnings before interest, taxes, and amortization (EBITA)
    Earnings before interest, taxes, and depreciation (EBITD)
    Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs
    (EBITDAR)
    Earnings before interest, taxes, depreciation, and amortization (EBITDA)
    EV/EBITDA
    Operating income before depreciation and amortization (OIBDA)

    References
    1. Bodie, Zvi; Kane, Alex; Marcus, Alan (2004). Essentials of Investments (https://archive.org/de
    tails/isbn_9780072503678). McGraw Hill. p. 452 (https://archive.org/details/isbn_978007250
    3678/page/452). ISBN 9780072510775.
    2. "Earnings before interest and, taxes (EBIT)" (https://www.nasdaq.com/glossary/e/earnings-b
    efore-interest-and-taxes). NASDAQ.
    3. Murphy, Chris B. (2019-07-11). "How are EBIT and operating income different?" (https://ww
    w.investopedia.com/ask/answers/012015/what-difference-between-ebit-and-operating-inco
    me.asp). Investopedia.
    4. "What is EBIT? definition and meaning" (http://www.investorwords.com/1631/EBIT.html).
    investorwords.com. Retrieved 2019-10-03.

    Retrieved from "https://en.wikipedia.org/w/index.php?title=Earnings_before_interest_and_taxes&oldid=1138850951"

    You might also like