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Earnings before interest and taxes (EBIT) help measure a company's profitability and is calculated as revenue minus expenses excluding tax and interest. EBIT is also called operating profit.
Discover everything you need to know about Earnings Before Interest and Taxes (EBIT). This article covers the formula and example of EBIT.
Here are the two EBIT formulas: EBIT = Net Income + Interest + Taxes. EBIT = EBITDA – Depreciation and Amortization Expense. Starting with net income and adding back interest and taxes is the most straightforward, as these items will always be displayed on the income statement.
EBIT Formula. Formula #1 - Income Statement Formula. Earnings Before Interest and Tax = Revenue – Cost of goods sold – Operating Expenses. Formula #2 - Using Contribution Margin. Sales – Variable Cost – Fixed Cost = EBIT. Sales – Variable Cost is also known Contribution Margin.
Formula. The EBIT formula is calculated by subtracting cost of goods sold and operating expenses from total revenue. This formula is considered the direct method because it adjusts total revenues for the associated expenses. You can also use the indirect method to derive the EBIT equation.
EBIT formula. The first way to calculate EBIT is as follows: EBIT = revenue - costs of goods sold (COGS) - operating expenses. Example (in USD millions):
EBIT = Total Revenue – Operating Expenses (excluding Interest and Taxes) Total revenue is the money a company earns from its primary business activities, and operating expenses are the...