EBIT (Earnings Before Interest and Taxes)

What is EBIT?

EBIT measures a company's profitability from core operations, excluding financing costs and tax obligations. It answers: how profitable is this business before capital structure and tax jurisdiction affect the numbers?

Why EBIT Matters

EBIT allows investors to compare companies regardless of how they're financed or where they're located. A company with heavy debt will have the same EBIT as a debt-free competitor with identical operations.

EBIT vs EBITDA

EBIT includes depreciation and amortization expenses, while EBITDA adds them back. For capital-intensive businesses, EBITDA may overstate cash generation since equipment must eventually be replaced.

SaaS company P&L:

• Revenue: $2,000,000
• COGS: $400,000
• Operating Expenses: $1,200,000
• Interest Expense: $50,000
• Taxes: $70,000

EBIT = $2M - $400K - $1.2M = $400,000

EBIT Margin = $400K / $2M = 20%