What is it ? EBIT is a financial indicator that shows profit before interest and taxes. It is often confused with EBITDA and OIBDA. Although both indicators show the company's profit, the calculation is based on different formulas.
How to calculate ? To find out EBIT, you need to add up interest expense, income tax and the profit itself. In addition to the absolute value, you can find out the relative values, and here you can’t do without the familiar EBITDA and OIBDA.
The article explains:
What is EBIT, EBITDA and OIBDA
Differences between advantages of truemoney database EBIT and EBITDA and operating profit
Formulas for calculating EBIT, EBITDA and OIBDA
Criticism of EBIT and EBITDA
IFRS requirements for EBIT and EBITDA
Features of calculating EBIT and EBITDA based on IFRS reporting data
Indication of EBIT and EBITDA in IFRS reporting
Ratios using EBITDA, EBIT and OIBDA
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What is EBIT, EBITDA and OIBDA
The volume of the financial statement of the organization's financial performance can be hundreds of pages. There is no need for the investor to read it in its entirety. The main information for it is always placed on the first pages, namely, data on profit and loss, on the general financial condition.
This information is the starting point for comparing companies with each other. It is used to calculate such indicators as EBIT, EBITDA, OIBDA. Let's take a closer look at what this is.
Earnings before interest and taxes (or EBIT) shows profit before taxes and interest accrued on outstanding financial obligations.
Earnings before interest, taxes, depreciation and amortization (EBITDA) reflects a company's profit before taxes, interest and depreciation are subtracted.
Operating income before depreciation and amortization (aka OIBDA) provides an indication of operating profit before depreciation and amortization.
As you can see, the difference between EBIT and EBITDA is only in the inclusion or absence of depreciation in the formula. It expresses the wear and tear of assets during their operation. If an enterprise has numerous means of production on its balance sheet, it has to bear significant expenses in the form of depreciation. This has a negative impact on profitability. The above indicators allow you to calculate income without taking it into account. Economists often resort to using EBITDA to evaluate a company. Taking depreciation into account in its formula allows you to get a more accurate understanding of real cash flows; profit - depending only on the results of economic activity.
What is EBIT, EBITDA and OIBDA
OIBDA takes into account only operating indicators, fixed income and expenses. It is not affected by one-time events such as changes in exchange rates, a single contract, or legal expenses. Unlike EBITDA and EBIT, this parameter, in simple terms, reflects the productivity of the main activity. It gives an understanding of the company's position, excluding non-fixed expenses.
The above indicators are an opportunity to compare the results of the activities of enterprises in the same sphere. They are also suitable for comparing companies operating in different countries and under different tax regimes.