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Earnings before interest and taxes
(Redirected from Operating profit)
In accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses (for individuals).[1][2]
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.[3]
Formula
EBIT = Net income + Interest + Taxes = EBITDA – Depreciation and Amortization expenses
Operating income = operating revenueoperating expenses (OPEX) = EBIT – non-operating profit + non-operating expenses[3]
Overview
A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings before interest, taxes, depreciation and amortization (EBITDA) and EBIT), and then determines the optimal use of debt vs. equity (equity value).
To calculate EBIT, expenses (e.g. the cost of goods sold, selling and administrative expenses) are subtracted from revenues.[4] Net income is later obtained by subtracting interest and taxes from the result.
Example statement of income (figures in thousands)[1]
 Revenue Sales revenue \$20,438 Cost of goods sold \$7,943 Gross profit \$12,495 Operating expenses Selling, general and administrative expenses \$8,172 Depreciation and amortization \$960 Other expenses \$138 Total operating expenses \$9,270 Operating profit \$3,225 Non-operating income \$130 Earnings before interest and taxes (EBIT) \$3,355 Financial income \$45 Income before interest expense (IBIE) \$3,400 Financial expense \$190 Earnings before income taxes (EBT) \$3,210 Income taxes \$1,027 Net income \$2,183
Earnings before taxes
Earnings before taxes (EBT) 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 (earnings before interest and taxes).