EBIT

Earnings Before Interest and Taxes or EBIT is a line calculated from a Company’s Profit & Loss and is the Earnings generated before Interest Expense and Taxes.

The EBIT figure measures a company’s operating performance and is calculated by the formula:

EBIT = Total Sales – COGS – Operating Expenses

Therefore, the EBIT result depends on the overall Sales result being, product pricing x volume and overall cost efficiency. EBIT looks at a company’s operating performance without the impact of the Capital Structure or Leverage, Interest Expense and Taxes.

A Company’s Market Capitalisation plus Net Debt known as Enterprise Value (EV), can be divided by EBIT. The Multiple can give an estimate of a company’s inter-sectoral efficiency or how much EBIT is produced by EV. The formula is:

EBIT Multiple = EV / EBIT

A comparatively high ratio will indicate that the EBIT generated is low based on the capital employed.