EBIT (operating profit)

A printable cheatsheet with calculations
and notes

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EBIT (operating profit)

EBIT =

Total revenues - COGS - Operating expenses

AKA operating profit

INTERPRETATION

Earnings before interest and taxes show how much profit a company generates from its operations alone without regard to interest or taxes.

Business owners, managers, and other interested parties use it to evaluate a company’s operations’ profitability without considering the cost of debt (interest expense).

Note: expanded calculation

Subtract the cost of goods sold and operating expenses from total revenues.

EXAMPLE

The income statement reports the following activities: Sales: $1,000,000 CGS: $650,000 Gross Profit: $350,000 Operating Expenses: $200,000 Interest Expense: $50,000 Income Taxes: $10,000 Net Income: $90,000

EBIT = $1M – $650,000 – $200,000 = $150,000

The company has $150,000 of profits left over after all the costs of goods sold and operating expenses have been paid for the year. (available to pay interest, taxes, investors, or pay down debt)

BENCHMARK: HA, PG, ROT

Knowing your industry’s EBIT standard and monitoring your company’s performance trend against it is essential.

To add value, you must compare EBIT with another metric.

EBIT:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.