Tracking your company’s finances is part of the job when you own a small business. You have plenty of ways to do that, including figuring your earnings before interest and taxes (EBIT). EBIT helps you check in on your financial strength, particularly your company’s profitability, while only looking at what you generate from your operations. Other terms for EBIT include operating earnings and operating profit, and this figure goes on your income statement.
Calculating your EBIT is relatively easy if you keep accurate financial records. You simply subtract all your company’s operating expenses, minus interest and taxes, from your total revenue. Another EBIT calculation method requires you to add interest and taxes to your net income.
EBIT gives you a better picture of your profits since it only reports operations-related data. Because you have no control over interest and tax expenses, excluding them more accurately reflects your actual performance. EBIT works better than net income for checking on how well your small business controls costs and maintains efficiency.
A low EBIT means your company doesn’t generate a large profit. Your EBIT should be equal to or higher than your net income, because you include additional expenses when calculating net income. You can improve your EBIT by increasing revenue, spending less to buy or make inventory, or spending less on business operations, such as marketing, sales, or human resources. You don’t include EBIT in your financial statements, so the calculation proves most useful for your internal financial health checks.
With accurate financial records through QuickBooks Online, you can easily calculate EBIT and other measures of your financial strength. More than 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.