EBIT stands for earnings before interest and taxes. EBIT is a measure of profitability that calculates a company’s net income before taxes and interest are deducted. It’s commonly pronounced EE-bit.
How is EBIT calculated?
To calculate EBIT, simply subtract your expenses from your revenue. Expenses include everything from raw materials (Direct costs, also known as cost of goods sold, or COGS), to employee salaries, to administrative costs. The EBIT formula is a simple calculation, but with some big implications:
EBIT = Revenue − Direct Costs − Operating Expenses
You can also calculate EBIT this way:
EBIT = Net Income + Interest + Taxes
Why is EBIT important?
EBIT is helpful for business owners and investors because it provides a simple, accurate snapshot of a company’s profitability, without taking into account taxes and interest. Simply put, it’s a straightforward way to see if the business is viable in the real world, as taxes don’t really have a bearing on your profitability. By calculating earnings without interest and taxes, businesses can focus on what the demand is for their product, and how efficiently they’re able to deliver that product. For investors, EBIT can indicate whether a business would be able to pay off debts.
Is EBIT operating income?
EBIT is often referred to as operating income (or operating profit), as both EBIT and operating income exclude interest expenses and taxes. However, there can be cases where operating income is different from EBIT. For example, if you generated revenue from outside of your normal typical stream of income – such as selling off part of your business – this would be counted under EBIT, but not operating profit.
Ready to open a business account today?
Getting your business finances under control
If you’re looking to start a business or simply get a better handle of your business finances, we recommend you start with a great business account that gives you super clear information and helpful tools to manage your business. Revolut Business offers a suite of features that will help supercharge your growth by keeping you organised – which is the first step toward calculating your EBIT and becoming more profitable.
With Open Banking, you can link all of your external bank accounts to your Revolut Business account, enabling you to see all of your business transactions in one place. That means more control over every pound, dollar and euro that goes in or out.
Learn more about Open Banking and Revolut Business.
End-to-end expense management
Our company cards help you to automate your expenses and capture receipts in the app instantly. We’ll even send your team helpful reminders to add expense details and receipts images, so you’ll never have to nag again. Then it’s up to your accountants and administrators to simply review expenses and reject or approve them – and even upload or import files to their accounting platform of choice.
You can create a virtual card for each of your recurring payments – such as software subscriptions and office space membership. This means never overspending again on subscriptions – you can manage, limit and cancel your subscriptions from one place.Sign up in minutes