EBIT

How to read it

EBIT is earnings before interest and taxes, reported on the income statement. It is what is left of revenue once the cost of sales and operating expenses are paid, before the company’s financing costs and its tax bill. Higher sales, better pricing or leaner costs push it up; rising costs, falling volumes or one-off charges booked above the interest line pull it down. Because it sits before interest, it lets you compare the earning power of companies that are financed very differently.

What is typical

Its size depends on how big the company is and how its costs are built. Businesses with high fixed costs see EBIT swing widely as sales rise and fall, while steadier businesses show a smoother line. A company that is still investing to grow can report EBIT near zero or below it. Judge the trend over several periods and compare its margin with the median for the company’s sector rather than the raw amount.

Pitfalls

stockrow shows EBIT for trailing twelve months, quarterly and annual periods; a single quarter can be seasonal, so line it up against the same quarter a year earlier. Statement tables show the figure in millions. EBIT feeds EBIT Growth, EBIT Margin, Interest Coverage and EV/EBIT, so an unusual charge in one period flows through to all of them. It leaves out interest and taxes, which a shareholder still has to bear.