With the term Ebit, Earnings before Interest & Tax, we refer to an indicator of the company’s result before taxes and financial charges.
In simple terms, Ebit can be defined as an operating result that focuses only on the company’s ability to generate profits by removing other variables from the calculation. For this reason, it can be very useful to those who are thinking of buying a company and are therefore interested in potential profit and not in the capital structure.
Ebit can be calculated in different ways, but generally it starts by subtracting operating costs from the total turnover, including those deriving from the sale of company assets. In the calculation we can also consider the net income, adding expenses and costs relating to rates and financial charges.
Ebit should not be confused with Ebitda which is instead a measure of gross operating margin that is obtained by adding Ebit to the value of depreciation.
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