EBIT is the acronym for earnings before interest and taxes. In other words, EBIT is a corporation’s net income assuming it had no interest expense and no income tax expense. (Since the amount of earnings is based on the net income reported on the income statement, a corporation’s other comprehensive income is not considered.)
A corporation’s EBIT could be the same as its operating income. However, if the corporation has nonoperating revenues and/or gains and/or certain losses, the EBIT will differ from operating income.
EBIT is not a GAAP metric but EBIT may facilitate the comparison of companies’ operating results for the following reasons:
- Some corporations are Subchapter S Corporations which do not report corporation income tax expense
- Some corporations are C Corporations which do report corporation income tax expense
- Some corporations have significant debt and therefore report significant interest expense
- Some corporations have little or no debt and therefore report little or no interest expense
