Hi, my name is Grant Hobson, I've been a finance analyst for the past six years. Today, I'm going to run you through some financial performance methods as well as some investment appraisal techniques. How to calculate earnings before interest and tax, also known as EBIT? EBIT is an indicator of accomplished profit ability and it's calculated as revenue minus expenses excluding tax and interest. It's also referred to as operating earnings, operating profit, or operating income. EBIT's usage has increased a lot and this is due to the way it nulls out the effects of different capital structures and tax rates that are used by different companies. By excluding both tax and interest expenses, the figure hones in on the companies' ability to make a profit and therefore, easier to make cross company comparisons. In order to calculate EBIT, you'll firstly need to know how to calculate the revenue generated and also the operation expense generated in the period that you're looking at. So an example with a formula, if you generate a revenue of 100,000 pounds plus your expenses of 60,000 pounds, your earnings before interest and tax are 40,000 pounds. So to recap, EBIT is an indicator of a companies' profit ability and it's calculated by revenue minus expenses excluding tax and interest. It's also referred to as operating earnings, operating profit, or operating income. EBIT's usage has increased a lot and this is due to the way it nulls out the effects of different capital structures and tax rates that are used by different companies. By excluding both taxes and interest expenses, the figure hones in on the companies' ability to make profit and therefore, easer to make cross company comparisons. So an example with a formula, if you generate a profit of 100,000 pounds plus your expense of 60,000 pounds, your earnings before interest and tax are 40,000 pounds. .

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