EBIT Full Form

EBIT is the term used in the context of accountancy while calculating profits of a company or organization during financial year, full form of EBIT is Earning Before Interest and Tax. EBIT is very important when it comes to analyzing the company’s financial results from outsider perspective because it gives a fair idea about company’s operational performance over the financial year.

Earning before interest and tax is calculated using the equation or formula, EBIT – Sales – (cost of goods sold + operating costs). Earning before interest and tax is not the final figure of profit because it excludes income tax and interest paid and therefore EBIT will always be higher than profit after tax. EBIT comes in handy when company wants to find whether the operational costs are high or low in relation to sales and whether there is any scope for reducing the operational cost and thereby improving the operation performance of the company which in turn will help in increasing the EBIT of the company.

However one should keep in mind that a higher EBIT does not guarantee that profits will also be higher because when it comes to highly leveraged companies the interest cost takes away the majority of the profits and therefore one should be very careful and should not confuse earning before interest and tax with actual profits. In simple words EBIT can be compared with trailer of a new upcoming movie if trailer is good then one cannot say with guarantee that a movie is also good in the same way a good EBIT figure does not mean that profits will also be good.

0 comments… add one

Leave a Comment

Related pages

what is law of diminishing marginal utilityadvantages and disadvantages of authoritarian leadershipadvantages and disadvantages of market penetration strategycalculation of net worth formulaexamples inferior goodshorizontal m&aassumptions of law of diminishing returnsexample of unearned revenuediversifiable risk refers to riskfull form of kpmgfdi advantages and disadvantagesfifo benefitsdisadvantages of slumsadvantages and disadvantages of mixed economydefinition of barter systemwhat are the disadvantages of socialismdupont chart analysisfluctuations définitionretail banking vs wholesale bankingadvantages and disadvantages capitalismebit equationauthorized vs issued sharesdemand loansdifference between direct and indirect tax with examplesmutual funds advantages disadvantagesadvantages and disadvantages of credit cards and debit cardsmonopolistically competitive marketsconsumer taste and preferencesglobalization advantages disadvantageswhat are the disadvantages of socialismfull form of cpiexample of systematic risk and unsystematic riskbenefits of merging companiesadvantages and disadvantages of skimmingdefine unsystematicadvantages and disadvantages of mixed market economyconsumer taste and preferenceswhat is the difference between accounts payable and receivablecumulative convertible preference sharesoverfull demanddisadvantage of fifoexamples of skimmingfinancial markets typesbond ladder strategyindustrialization advantagesexplain capital rationingthe disadvantage of globalizationdistinguish between assets and liabilitiessocialism featuresmeaning of traditional economytypes of contingent liabilitiesexplain marginal costingidentify the advantages and disadvantages of a command economyadvantages of stable dividend policyunqualified auditmerits and demerits of plastic moneyautocratic managercertificates of deposits in indiaskimming pricing strategiesentry for bad debtsdemat account introductionwhat is unearned income in accountingfactoring receivables definitioncompare and contrast a tariff and a quotadefine payback methodstrengths and weaknesses of market economyadvantages and disadvantages of break evendepreciation declining balancefund flow and cash flowexample of diversifiable riskforfeiting trade financecash flow fund flowideal debt equity ratio for banksexamples of unitary elastic demand