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  • 1 Direct Method EBIT Revenue - COGS - Operating Expenses

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    Karan Morbia
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    EBIT or earnings before interest and taxes is a measure of a company's operating profit that excludes interest and tax expenses. It shows the profit generated from core business operations. EBIT can be calculated using the direct method of revenue minus costs of goods sold and operating expenses, or the indirect method of net income plus interest and tax expenses. Analyzing a company's EBIT is useful for investors because it allows evaluation of operating performance independently of unique interest and tax rates between companies. The document then provides the yearly EBIT figures for Larsen and Toubro (L&T), an Indian engineering company, showing it has generally increased over time except for a slight decrease in 2020, possibly due to Covid-19 impacts.

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    Ebit income

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    EBIT

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    EBIT or earnings before interest and taxes is a measure of a company's operating profit that excludes interest and tax expenses. It shows the profit generated from core business operations. EBIT can be calculated using the direct method of revenue minus costs of goods sold and operating expenses, or the indirect method of net income plus interest and tax expenses. Analyzing a company's EBIT is useful for investors because it allows evaluation of operating performance independently of unique interest and tax rates between companies. The document then provides the yearly EBIT figures for Larsen and Toubro (L&T), an Indian engineering company, showing it has generally increased over time except for a slight decrease in 2020, possibly due to Covid-19 impacts.

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    40 views2 pages

    1 Direct Method EBIT Revenue - COGS - Operating Expenses

    Uploaded by

    Karan Morbia
    EBIT or earnings before interest and taxes is a measure of a company's operating profit that excludes interest and tax expenses. It shows the profit generated from core business operations. EBIT can be calculated using the direct method of revenue minus costs of goods sold and operating expenses, or the indirect method of net income plus interest and tax expenses. Analyzing a company's EBIT is useful for investors because it allows evaluation of operating performance independently of unique interest and tax rates between companies. The document then provides the yearly EBIT figures for Larsen and Toubro (L&T), an Indian engineering company, showing it has generally increased over time except for a slight decrease in 2020, possibly due to Covid-19 impacts.

    Copyright:

    © All Rights Reserved
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    of 2

    EBIT or the operating income is the profitability measurement which determines the company’s

    operating profit.

    1. It shows the amount of profit that the company generates from its operating activities only.

    2. Here the expenses pertaining to the interest and taxes are not considered for calculating the EBIT as
    they do not arise due to the operating activities and that’s why it means operating profit or operating
    earnings.

    It can be calculated by using the direct and indirect method.

    1 Direct Method

    EBIT = Revenue – COGS – Operating Expenses

    • Revenue

    • Cost of Goods Sold COGS = Opening inventory+ purchases of raw material + direct labor +
    overheads – closinginventory

    • Operating Expenses

    2 Indirect Method

    EBIT = Net income +Interest expenses + Tax expense

    Why Does Earnings Before Interest and Taxes (EBIT) Matter?

    EBIT provides investment analysts with useful information for evaluating a company’s operating
    performance without regard to interest expenses or tax rates.EBIT helps minimize these two variables
    that may be unique from company to company, and enables one to analyze operating profitability as a
    singular measure of performance.

    Larsen and Turbo (L&T)

    L&T Technology Services (L&T) is an engineering services company based in Vadodara, Gujarat. It
    operates as a subsidiary of the conglomerate Larsen & Toubro (L&T), and is listed on the National Stock
    Exchange and the Bombay Stock Exchange.The company also has offices in Edison, New Jersey, and
    Munich,and a subsidiary company Esencia, based in San Jose, California.
    Yearly EBIT Numbers for L&T

    March'20 - 16227 Crores

    March'19 - 15537 Crores

    March'18 - 13117 Crores

    March'17 - 10226 Crores

    March'16 - 9627 Crore

    As we can see there has been an increase in approximately 6% increase in EBIT followed by the increase
    of 24% followed by a slight lesser growth of 18% Ending up with a minimal growth of 4%.

    As the EBIT has increased constantly other than March'20 Year Ended Result as Covid-19 had hit China
    and many European companies and that can be one of the reason for the decrease in sales numbers.
    There can also be a chance of high operating cost as EBIT only calculates the operating profit and
    increase in operating activity can reduce the EBIT.

    So as per the average inflation rate of 4% we can say company's performance is getting better day by
    day as company is generating a good operating profit and there are low chances of companies operating
    profit would be same as expenses after operating activity and L&T is a good and one of the trusted
    company in India as well because it is turning its EBIT to a good EPS.

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