Debitoor Dictionary

Accounting terms explained in a simple way

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EBIT – What is EBIT?

Definition: EBIT = earnings before interest and tax.

Earnings before interest and tax is also referred to as Operating Profit. When producing your month end accounts part of the package of reports you will produce will be your Profit and Loss account or also referred to as your Income statement.

This lists your Revenue or Sales, then your cost of sales, so any items which have been bought in by the company to sell on or assist in the manufacture of your product in order to sell on to your customers. Your revenue less your cost of sales will give you your gross profit. You would then list what is referred to as your indirect costs and your overheads. These would normally encompass the marketing costs, any samples of your products you may have given to customers and any wages you would have paid out to your workforce if you have manufactured your product.

Your overheads consist of salaries, rent, utilities and running costs of your staff and your office. These two categories would normally be totaled together. Your gross profit would then be deducted from this total to give you your operating profit or EBIT (earnings before interest and tax).