EBIT

EBIT starts from net income and adds back interest expense and taxes. Alternatively, it can be built up from revenue by subtracting cost of goods sold and all operating expenses, along with any other non-operating items included before interest and tax.

For example, if a company reports net income of 600,000, interest expense of 150,000 and income tax of 250,000, its EBIT is 1,000,000.

The point of removing interest and taxes is comparison. Two companies might run equally profitable businesses, but if one has a lot of debt, it pays much more interest and reports lower net income. EBIT strips out these financing and tax differences, showing how profitable the operations themselves are.

EBIT is closely related to operating income and is often used interchangeably, though they can differ slightly depending on how non-operating items are treated. It is widely used in valuation, for example in the EV/EBIT multiple, and in measuring how easily a company can cover its interest payments.