EBIT is a measure of a company's profitability that represents an income before income tax and interest expenses deduction. EBIT is an important measure of operating efficiency because it allows to analyze the company's performance of its core operations without the costs of the capital structure and tax expenses impacting profit. EBIT is also known as Operating income, since both indicators exclude interest expenses and taxes from their calculations. However, not always operating income is equal to EBIT. The main difference between EBIT and Operating income is that EBIT includes non-operating income, non-operating expenses, and other income. If a company is classified as an Insurance or Bank, EBIT will not be available due to its calculation methodology. These companies will not have Costs of goods sold, selling, and general & administrative expenses, which are used in the calculation.
The distinguishing feature of EBIT is that it helps to identify a company's ability to generate enough earnings to pay down debt, fund ongoing operations and be profitable. EBIT is useful to investors who are comparing companies from different countries with different tax legislation. EBIT is also helpful in analyzing companies of capital-intensive industries which usually have a large amount of debt to maintain their assets, and their debt might greatly differ from each other. EBIT allows analyzing the operating performance and profitable potential of companies while stripping out the affection of debt from the analysis.