Term · Profitability & Growth
EBIT
In briefEBIT stands for earnings before interest and taxes and reflects operating earnings power before financing effects. For small caps it allows operating quality to be compared independently of the capital structure.
Definition
EBIT is operating earnings before interest and taxes and measures earnings performance before financing effects.
How it is calculated
Formula. EBIT = revenue – operating expenses including depreciation and amortization; the specific presentation depends on the accounting standard and segment reporting.
Why it matters for small caps
EBIT helps in small caps to compare operating quality independently of financing.
Common misreadings
- EBIT is often confused with net income, even though interest, taxes, and in part one-off effects are not yet included.
In the process
Frequently asked
What is EBIT?
It is operating earnings measured before the deduction of interest and taxes. Financing costs and the tax burden are left out.
How is EBIT used?
It is used to compare the operating earnings power of different companies without the influence of financing. The basis is revenue less operating expenses including depreciation and amortization.
What is EBIT often confused with?
It is often equated with net income. In fact, EBIT still excludes interest, taxes, and in part one-off effects.
Related terms
Sources
Primary
IFRS Foundation – IAS 1 Presentation of Financial Statements
https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-statements/
https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-statements/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.