EBIT Concept
EBIT (acronym of the English expression “earnings before interest and taxes”), also designated by operational result, is a financial-economical indicator that seeks to evaluate the company’s capacity to generate results from its operational activity. For that, the costs are purged from the results (and eventually profits) that are not related with the company’s activity itself (the called operational activity).
One of the EBIT’s use advantages is the calculation easiness being that it corresponds only to the difference between the operational profits and the operational costs, this is, the operational results. On the other hand, allows analyses and comparisons of different divisions in the same company, simply by isolating the operational profits and costs of each one of them. At last, another advantage of the EBIT’s use is the fact that it allows to evaluate the company’s capacity to generate results independently of its financial politic.
EBIT restrictions: To refer, however, that this indicator used alone, such as it happens with many other indicators, can originate deceiving conclusions in the gauge that the company’s economical and financial health diagnostic is found to be incomplete. In fact, when expunging the results of the financial charges and the tax charges, we do not have a complete perspective of the company’s results.
Calculation Formula:
(+) Net Results
(+) Financial Funding Charges
(+) Tax over Profits
———————————
(=) EBIT
