EBIT Calculator: Earnings Before Interest and Taxes, Two Ways

How it works

Revenue method: EBIT = revenue − COGS − operating expenses − depreciation and amortization (+ other operating income) · Net income method: EBIT = net income + income tax + interest expense − non-operating income · EBIT margin = EBIT ÷ revenue · EBITDA = EBIT + D&A · EBT = EBIT − interest · Interest coverage = EBIT ÷ interest expense

EBIT, earnings before interest and taxes, is the profit a business makes from its operations before paying lenders and the tax authority. Because it ignores how the company is financed and where it pays tax, it lets you compare the operating performance of companies with different debt levels or in different countries. On most income statements it is the operating income line. You can reach it from either end of the income statement. Top down, start with revenue and subtract cost of goods sold, operating expenses (selling, general and administrative, research, rent, salaries) and depreciation and amortization. Bottom up, start with net income and add back income tax and interest expense. Both routes give the same figure when the income statement has no non-operating items. If net income includes interest income, investment gains or a gain on an asset sale, remove them under More options so EBIT reflects operations only. You can also add back one-time charges to see an adjusted EBIT, which analysts often quote but which is not a standard accounting measure. The calculator also shows EBIT margin, EBITDA (EBIT plus D&A), EBT and the interest coverage ratio, and lays out an income statement bridge. Use the operating margin calculator if you only need the percentage, or the EBITDA calculator when your starting point is net income and you want cash-style earnings before D&A.

Worked example

A company has $1,000,000 of revenue, $600,000 cost of goods sold, $200,000 of operating expenses and $50,000 of depreciation and amortization. Gross profit is $400,000, and EBIT = $400,000 − $200,000 − $50,000 = $150,000, an EBIT margin of 15.00%. Adding back D&A gives EBITDA of $200,000 (20.00%). After $20,000 of interest, EBT is $130,000; at a 21% tax rate tax is $27,300 and net income is $102,700. Interest coverage is $150,000 ÷ $20,000 = 7.50×. Starting from the bottom instead, $102,700 net income + $27,300 tax + $20,000 interest gives the same $150,000.

Sources: Corporate Finance Institute: EBIT and EBITDA (Company XYZ worked example) · Omni Calculator: EBIT calculator (revenue minus operating expenses example)

Frequently asked questions