Earnings before interest and taxes


In accounting and finance, earnings before interest and taxes is a measure of a firm's profit that includes all incomes and expenses except interest expenses and income tax expenses.
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.

Formula

  • EBIT = + interest + taxes = EBITDA –
  • Operating income = – OPEX = EBIT – +
where
A professional investor contemplating a change to the capital structure of a firm first evaluates a firm's fundamental earnings potential, and then determines the optimal use of debt versus equity.
To calculate EBIT, expenses are subtracted from revenues. Net income is later obtained by subtracting interest and taxes from the result.

Earnings before taxes

Earnings before taxes 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.