EBIT

Definition

In accounting, EBIT stands for "Earnings Before Interest and Taxes." It’s a way to measure a company's core profitability by looking at how much it earns from its main operations before factoring in interest expenses or taxes. The EBIT formula is the following:

EBIT = Revenue – COGS – Operating expenses

Why it matters

EBIT focuses purely on a company’s ability to earn money from its core operations, without the influence of financing costs or varying tax rates. By isolating operating profits, EBIT gives a clearer sense of how well the business is running at its core. This can be essential for investors, who want to know if a company’s main activities are profitable before adding in factors like debt costs or tax impacts, which can differ a lot between companies.

For business owners, EBIT provides insight into how effectively they’re managing costs and generating revenue from operations. It’s also useful over time as a measure of consistency. If EBIT is growing steadily, it usually indicates healthy operational performance.