Work out EBIT two ways: top down from revenue and expenses, or bottom up from net income. You also get EBITDA and the operating margin.
Estimates for planning, not financial, tax or legal advice. Figures use US rules unless the page says otherwise.
What EBIT means
EBIT is earnings before interest and taxes: what a business earns from its operations before paying interest on its debt and income tax. It's close to operating profit (operating income), the line the SEC's guide to financial statements describes as profit "before interest and income tax expenses". EBIT lets you compare businesses that are financed differently or taxed differently.
The EBIT formula, two ways
EBIT = revenue − cost of goods sold − operating expenses
EBIT = net income + interest expense + income tax expense
Both give the same answer when the business has no other non-operating income or costs. If it does (an investment gain, say), the two can differ a little; the second method then includes those items.
EBITDA = EBIT + depreciation + amortization Operating margin = EBIT ÷ revenue × 100
Worked example
A company has $500,000 of revenue, $200,000 cost of goods sold and $180,000 of operating expenses, which include $20,000 of depreciation and amortization.
| Line | Amount |
|---|
| Revenue | $500,000 |
| − Cost of goods sold | $200,000 |
| = Gross profit (60% gross margin) | $300,000 |
| − Operating expenses | $180,000 |
| = EBIT | $120,000 |
| + Depreciation and amortization | $20,000 |
| = EBITDA | $140,000 |
Operating margin = 120,000 ÷ 500,000 = 24%. From the bottom: net income $80,000 + interest $10,000 + taxes $30,000 = the same $120,000.
Limitations
- EBIT and EBITDA aren't defined by US accounting rules (GAAP). The SEC treats them as non-GAAP measures and expects public companies to reconcile them to net income. Companies sometimes show "adjusted" versions that leave out more costs, so check what's included.
- EBITDA ignores the cost of replacing equipment, so it can make capital-heavy businesses look more profitable than they are.
- For margins on a single product or price, use the profit margin calculator.
Sources
How we checked this
Before every update, this calculator is run in a real browser with these known answers, and it must match all of them:
- $500,000 − $200,000 − $180,000 = EBIT $120,000.00 ✓
- …EBITDA $140,000.00 with $20,000 of D&A ✓
- Net income $80,000 + interest $10,000 + tax $30,000: 24% operating margin on $500,000 ✓
- A $50,000 net loss with $10,000 interest: EBIT −$40,000.00 ✓
- Edge case: no revenue, $380,000 of costs: EBIT −$380,000.00 ✓
Last checked October 26, 2026. Spotted something wrong? The math is done in your browser with the formula shown on this page, so you can check any result by hand.
Questions people ask
What is EBIT?
Earnings before interest and taxes: revenue minus cost of goods sold and operating expenses. It shows profit from operations before financing costs and income tax.
What does EBIT mean in simple terms?
How much a business makes from what it actually does, before paying its lenders and the tax authorities.
How do you calculate EBIT from net income?
Add back interest expense and income tax expense: EBIT = net income + interest + taxes. $80,000 + $10,000 + $30,000 = $120,000.
What is the difference between EBIT and EBITDA?
EBITDA also adds back depreciation and amortization, the non-cash costs of using up equipment and intangible assets. EBITDA is always at least as large as EBIT.
Is EBIT the same as operating income?
Often, but not always. Operating income excludes non-operating items like investment gains; EBIT calculated from net income includes them.