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EBIT is an acronym for Earnings Before Interest and Taxes. EBIT is defined as the operating profit without deductions for taxes and interest payments. Investors looking at the fundamental values of companies may use EBIT to estimate earnings as it is easier to calculate than the standard measure. EBIT is also useful for gauging profitability of different parts of conglomerates; with large debt loads and many divisions, it may not be clear which division is responsible for what debt. By removing the interest payment, EBIT may offer a cleaner analysis.
The even more refined EBITDA - Earnings Before Interest Taxes Depreciation and Amortization - was widely used during the high tech bubble of the 1990s. By understating expenses, EBITDA allowed unprofitable companies to look profitable. |
