Earnings before interest and taxes - Wikipedia, the free encyclopedia

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From Wikipedia, the free encyclopedia

In accounting and finance, earnings before interest and

taxes (EBIT) or operating income is a measure of a
firm's profitability that excludes interest and income tax
expenses.[1]
EBIT = Operating Revenue Operating Expenses
(OPEX) + Non-operating Income

Accountancy

Key concepts

Operating Income = Operating Revenue Operating

Expenses[1]
Operating income is the difference between operating
revenues and operating expenses, but it is also sometimes
used as a synonym for EBIT and operating profit.[2] This
is true if the firm has no non-operating income.
A professional investor contemplating a change to the
capital structure of a firm (e.g., through a leveraged
buyout) first evaluates a firm's fundamental earnings
potential (reflected by Earnings Before Interest, Taxes,
Depreciation and Amortization EBITDA and EBIT), and
then determines the optimal use of debt vs. equity.

Accountant Bookkeeping Trial balance General

ledger Debits and credits Cost of goods sold
Double-entry system Standard practices Cash and
accrual basis GAAP / IFRS
Financial statements
Balance sheet Income statement Cash flow
statement Equity Retained earnings
Auditing
Financial audit GAAS Internal audit
Sarbanes-Oxley Act Big Four auditors
Fields of accounting
Cost Financial Forensic Fund Management

To calculate EBIT, expenses (e.g., the cost of goods sold,

selling and administrative expenses) are subtracted from
revenues.[3] Profit is later obtained by subtracting interest
and taxes from the result.

Tax

Statement of Income Example

(figures in millions)
Operating Revenue
Sales Revenue

$20,438

Operating Expenses
Cost of goods sold

$7,943

Selling, general and administrative expenses $8,172

Depreciation and amortization

$960

Other expenses

$138

Total operating expenses

Operating income
Non-operating income
Earnings before Interest and Taxes (EBIT)

$17,213
$3,225
$130
$3,355

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Earnings before interest and taxes - Wikipedia, the free encyclopedia

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http://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes

Net interest expense/income

$145

Earnings before income taxes

$3,210

Income taxes
Net Income

$1,027
$2,183

(Table info source: Bodie, Z., Kane, A. and Marcus, A. J. Essentials of Investments, McGraw Hill Irwin,
2004, p. 452.)

1. ^ a b Bodie, Z., Kane, A. and Marcus, A. J. Essentials of Investments, McGraw Hill Irwin, 2004, p. 452. ISBN 0
07 251077 3
2. ^ http://www.investorwords.com/3460/operating_income.html Operating income definition
3. ^ http://www.investorwords.com/1631/EBIT.html EBIT definition

Revenue
Gross profit
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent
Costs(EBITDAR)
Operating profit
Net income per employee
Earnings before tax (EBT)
Net profit or Net income
Financial Result
Profit Before Interest, Depreciation & Taxes - PBDIT
Earnings Before Depreciation, Interest and Taxes - EBDIT
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Categories: Fundamental analysis | Financial terminology | Generally Accepted Accounting Principles
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12/15/2009 12:38 PM