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Encyclopedia > Earnings before interest and taxes

Earnings before interest and taxes (EBIT), also known as operating income and operating profit, is a term used to describe a company's earnings. 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 EBITDA and EBIT), and then determines the optimal use of debt vs. equity. To calculate EBIT, basic expenses (e.g., the cost of goods sold, selling and administrative expenses) are subtracted from revenues. Profit is later obtained by subtracting interest and taxes from the result. The Capital Structure of a corporation is the way in which that entity finances itself -- by some combination of equity sales, equity options, bonds, and loans. ... A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or bootstrap transaction) occurs when a financial sponsor gains control of a majority of a target companys equity through the use of borrowed money or debt. ... In accounting and finance, EBITDA «ee-bit-dah» or «ee-bit-dee-eh» stands for Earnings before Interest, Taxes, Depreciation, and Amortization (sometimes named OIBDA for operating income before depreciation and amortization). ... It has been suggested that this article or section be merged with cost of sales. ... Net income is equal to the income that a firm has after subtracting costs and expenses from the total revenue. ...


See also

In accounting and finance, EBITDA «ee-bit-dah» or «ee-bit-dee-eh» stands for Earnings before Interest, Taxes, Depreciation, and Amortization (sometimes named OIBDA for operating income before depreciation and amortization). ...

External links

  • operating income definition

  Results from FactBites:
 
Understanding Income Statements (1739 words)
Earnings before interest and taxes (EBIT) is the sum of operating and non-operating income.
Regardless of how it is calculated, EBIT is especially relevant to bondholders and other debtors who use this figure to calculate a firm's ability to "cover" or pay its interest payments with its income for the year.
Interest expense refers to the amount of interest a company has paid to its debtors in the current year.
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