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.

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Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: wwBLOG@smartest-data.blog or Telegram +393339034488

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