EBIT Calculator
Calculate earnings before interest and taxes
EBIT Formulas
Understanding EBIT
EBIT (Earnings Before Interest and Taxes) measures a company's operating profitability independent of its capital structure and tax situation. It shows how much profit the core business operations generate before financing costs and taxes.
EBIT is also called Operating Income or Operating Profit. It's calculated either by subtracting COGS and operating expenses from revenue, or by adding interest and taxes back to net income. Both methods should yield the same result.
EBIT is widely used in business valuation, especially for comparing companies across different tax jurisdictions or with different debt levels. It's a key input for the EV/EBIT multiple used in M&A analysis.
EBIT vs Related Metrics
EBIT
Operating profit before interest and taxes. Excludes non-operating items.
EBITDA
EBIT plus depreciation and amortization. Cash proxy.
Operating Income
Often used interchangeably with EBIT. Check for non-operating items.
Net Income
EBIT minus interest and taxes. Bottom line profit.
EBIT Margins by Industry
| Industry | Typical EBIT Margin | Good Margin | Notes |
|---|---|---|---|
| Software | 15-30% | >25% | High operating leverage |
| Manufacturing | 8-15% | >12% | Capital intensive |
| Retail | 3-8% | >6% | Thin margins, volume-based |
| Services | 10-20% | >15% | People-intensive |
| Utilities | 10-15% | >12% | Regulated returns |
Using EBIT Effectively
Exclude Non-Operating Items
True EBIT excludes gains/losses from investments, asset sales, and other non-core activities.
Compare Within Industry
EBIT margins vary significantly by industry. Compare to sector peers, not across sectors.
Track Trends
A rising EBIT margin indicates improving operational efficiency. Falling margins need investigation.
Consider CapEx Needs
EBIT doesn't account for capital expenditures. Asset-heavy businesses may have high EBIT but low free cash flow.
Frequently Asked Questions
What's the difference between EBIT and Operating Income?
They're usually the same, but some companies include non-operating income in their Operating Income line. Check the income statement carefully. Pure EBIT should only include operating activities.
Why use EBIT instead of Net Income?
EBIT allows comparison of operational performance across companies with different capital structures and tax rates. A company with lots of debt will have lower net income but the same EBIT as a debt-free peer.
How is EBIT used in valuation?
EV/EBIT is a common valuation multiple. It compares enterprise value to operating earnings. Unlike P/E, it works for companies with different leverage and is unaffected by non-cash items like D&A.
Can EBIT be negative?
Yes, if operating expenses exceed gross profit. A negative EBIT indicates the core business isn't profitable. This is common for early-stage companies investing heavily in growth.
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