Earnings Before Interest and Taxes (EBIT)

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Definition: Earnings Before Interest and Taxes (EBIT)

It is the measure of firm’s profitability before taking into consideration the interest, taxes and other extra-ordinary income/expenses. It is also known as “Operating Profit”.  

It is calculated as Total Revenue (-) Operating Expenses.

It is mainly used for inter-firm comparison as it nullifies the effect of different capital structures and tax planning. It indirectly represents the amount of cash which the company can use to pay off its creditors. It indicates the earning potential of the firm.

 

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