Earnings before interest and taxes (EBIT)

Earnings before interest and taxes (EBIT) indicate how effectively a company generates earnings over a specific period of time.

EBIT appears on the income statement before deducting interest and expenses or revenues from one-time events, providing a business with the most accurate picture of its operating potential. This is why it is also often referred to as operating income or operating profit.

A company’s EBIT can be compared with that of other companies in the same industry to judge how well it is doing. Because all companies carry different debt loads and they incur different one-time events, more insight is gained by doing a comparison before those deductions are made.

Business owners and managers use EBIT to compare results against their plans and to make adjustments in the current operating period. In addition, trend analyses are completed to plan and make adjustments over longer periods.

Investors use EBIT to decide if they want to change their ownership position in a company. Bankers use it as a secondary figure to determine if they should provide more debt—the primary figure being EBITDA (earnings before interest, taxes, depreciation and amortization).

More about earnings before interest and taxes

The income statement below shows the earnings before interest and taxes for a wholesale company with revenues of $100,000, cost of sales of $35,000 and SG&A expenses of $25,000.

Useful resources

Free and low-cost accounting software

If you are looking for a low-cost or free Accounting software, you may want to consider our list. Choose the right one for your needs with BDC.ca.

Read article

Ratio calculators

Financial ratios are a way to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency and debt load of your business.

Learn more

Your privacy

BDC uses cookies to improve your experience on its website and for advertising purposes, to offer you products or services that are relevant to you. By clicking ῝I understand῎ or by continuing to browse this site, you consent to their use.

To find out more, consult our Policy on confidentiality.