Earnings Before Interest & Tax - EBIT

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DEFINITION of 'Earnings Before Interest & Tax - EBIT'

An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating income", as you can re-arrange the formula to be calculated as follows:
 

EBIT = Revenue - COGS- Operating Expenses

Also known as Profit Before Interest & Taxes (PBIT), EBIT equals Net Income with interest and taxes added back to it.

BREAKING DOWN 'Earnings Before Interest & Tax - EBIT'

In other words, EBIT is all profits before taking into account interest payments and income taxes. An important factor contributing to the widespread use of EBIT is the way in which it nulls the effects of the different capital structures and tax rates used by different companies. By excluding both taxes and interest expenses, the figure hones in on the company's ability to profit and thus makes for easier cross-company comparisons.

EBIT was the precursor to the EBITDA calculation, which includes depreciation and amortization expenses.

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