In the field of corporate finance, a thorough understanding of financial metrics is essential. In this context, EBIT is presented as an essential tool for evaluating the operational performance of companies, both internally and externally.
Next, we will explain what EBIT is, what its relevance is and how it is calculated.
EBIT formula
EBIT is a simple metric to calculate. From a mathematical point of view:
EBIT = total revenue − operating costs − general and administrative expenses − costs of goods sold – amortization and depreciation expenses
It can also be calculated from the net result of a company:
EBIT = Net result + tax expenses – tax income + financial expenses – financial expenses
How to calculate EBIT?
To calculate EBIT, you must follow the following steps:
- Obtain the company’s financial statements to know the total income and operating costs.
- The former refer to the total amount of income generated by the company, including sales. Costs, on the other hand, are all the expenses necessary to keep the business operational, such as selling, administrative or production expenses.
- They must also
- Calculate the difference between total revenue and operating costs.
- Interpret the EBIT result, whether it is positive or negative and to what extent, as explained in the previous point.