EBIT (operating income).
In plain English
EBIT stands for earnings before interest and taxes, and in most filings it lines up with operating income. You start with revenue, subtract cost of goods sold and operating expenses including depreciation, and stop before financing costs and tax. What is left shows how profitable the actual business is, separate from how it is funded and where it pays tax. Because depreciation is still subtracted, EBIT reflects at least an estimate of the cost of wearing out equipment. That single difference is what separates it from EBITDA.
01Why it matters
It isolates the performance of the business itself, so a company with heavy debt and one with none can be compared on how well they actually operate.
02The math, step by step
Revenue is $2 billion. Cost of goods sold is $1.2 billion and operating expenses including depreciation are $500 million. $2 billion minus $1.7 billion leaves EBIT of $300 million, a 15 percent operating margin.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
EBITDA adds depreciation and amortization back; EBIT does not. For an asset-heavy company the gap between the two is large, and it represents a real cost of replacing equipment that has to be paid eventually.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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