## EBIT Calculation Formula

Application of EBIT in Investment#2. Dupont 5-factor model: The relationship between EBIT and ROE#4. EV/EBIT IndexEBITDA Calculation FormulaMisunderstandings that EBITDA causes for investorsApplication of EBITDA in investmentBottom lines

As an investor or business owner, you need to have a grasp of the key financial metrics to measure the performance of your business.

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EBIT and EBITDA are 2 of these important metrics.

So what are they? What is the difference between these 2 indicators? How are they calculated and what are the possible impacts on the business?…

This GoValue article will help you know everything there is to know and help clear the confusion out of these metrics. This will allow you to use these metrics more effectively when evaluating a business.

## What is EBIT

?EBIT stands for Earnings Before Interest and Tax.

This is an extremely useful financial metric when you want to gauge the profitability of a business.

Because it looks specifically at the income that the business generates from its core activities.

EBIT . Calculation Formula

EBIT is calculated by taking Net Profit (EAT) plus Interest Expense and CIT:

EBIT = Profit after tax + CIT + Interest expense

Or: EBIT = Profit before tax + Interest expense

This is the formula used by most investors.

The calculation is quite easy, because the numbers have all been extracted and shown on the business results report of the enterprise.

### Example of how to calculate EBIT of PPC in 2019

To calculate 2019 EBIT of Pha Lai Thermal Power Joint Stock Company (Code: PPC).

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Notice the red box on PPC’s 2019 Earnings Report.

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### Applied in financial analysis

Although there are some limitations, but EBIT, EBITDA is still one of the most commonly used financial ratios.

You should use them in combination with other financial indicators to have a more objective and accurate view of the financial position of the business. Do not depend on a single criterion.

In addition, EBIT and EBITDA indicators should be compared between years, compared with other enterprises in the industry or with the industry average to achieve the best performance.

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### Applicable in pricing

Just like other valuation indicators (such as P/E, P/B, P/S …)

GoValue always advises investors not to apply machines, but only to consider these valuation metrics as an approach, as a reasonable test to ensure a meaningful valuation.