EBIT

EBIT stands for earnings before interest and taxes. It is another indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is sometimes referred to as "operating earnings", "operating profit" and "operating income".

What is the difference between EBIT & EBITDA? It all depends on the importance of ‘DA’ for your business. If your business is very capital-intensive (whether tangible, intangible or both) then the efficiency of managing your ‘DA’ becomes a very important contribution to your financial performance and financial value generation.

If it is not and your ‘DA’ has little impact on your bottom line then there is little – if any – difference between the two. In other words, EBIT is a more relevant metric for companies in capital intense industries than EBITDA. And essentially the same – in others.

However, there is still an issue of performance comparison and benchmarking. EBITDA allows you to compare your operating performance with a much wider universe of companies those that have fundamentally similar structure of COGS and operating expenses (as you do not take ‘DA’ management into account). EBIT significantly narrows down this comparison base – because for the latter the efficiency of ‘DA’ management does matter.

Also, the advantage of EBIT over EBITDA pertains to the fact that the ‘DA’ more often than not, is really a mellowed measure of capex, as it concerns itself with items purchased over many years. So in reality, EBIT is a better representative of real earnings.