Earnings before interest and taxes
The EBIT ( engl. earnings before interest and taxes; literally translates to " earnings before interest and taxes "), which is also referred to as operating profit, is a business management code and says something about the company's earnings in a given time period. He belongs to the " pro forma figures" from the income statement under IFRS, in which the result is adjusted for taxes and interest.
Background
The EBIT is the result of the IFRS accounting and designates the not adjusted for interest and taxes Net income or loss. Under German GAAP, EBIT must also be adjusted for the extraordinary result. This is not reported separately in the accounting under IFRS. Extraordinary, one-time costs and expenses are ignored, as are interest, other financing income or expenses and taxes, because all of these positions are not caused by the actual operational activity. One speaks here of a cleanup of the gain or removal of certain arithmetic positions:
Depreciation of fixed assets are cleared from other periods or unusual ingredients, eg for special depreciation on investments.
The EBIT makes the nature of a decision of this size ( number ) is particularly clear:
The "before" EBIT means "before" taxes ( " taxes" ) and only then the following sizes of retained earnings ( eg distributions and dividends). This company openly about the use of their profits earned ( " earnings" ) can decide for their projects.
With demand for new equity companies can communicate the objectives for the use of this equity open. Of course, interest on borrowings and debt repayments need to be considered for existing debt, but gradually increases in equity could stand for the reduction of debt in the foreground.
Based on the EBIT Financial analysts and controllers, for example, compare the operating profits of different fiscal years, quarters or divisions directly, without the results are distorted by fluctuating tax rates, interest expenses or other extraordinary factors.
Another application is the estimate of the enterprise value using the multiplier method.
Related Ratios
The EBITA and EBITDA also convert out the depreciation or parts thereof from the profit.
EBIT margin
The EBIT margin (English: EBIT margin ) is the ratio of EBIT to revenues:
The EBIT margin expresses the fact that operating profit has been achieved by annual sales. EBIT margins also indirectly say something about the competition in an industry as oligopolistic or even monopolistic structures tend to allow greater freedoms price and therefore higher EBIT margins can be achieved. Cost-effective manufacturing companies have greater benefits to achieve higher EBIT margins than companies with a high cost item. High profitability point - depends on the industry - company with an EBIT margin of over 15 %, whereas high profitability risks are present in EBIT margins of less than 3%. The EBIT margin is the world especially in public shares a popular indicator of the return on sales, such as the formation of a ranking. Similarly, return on sales, the EBIT margin something say about a company's profitability, but as EBIT regardless of financial results, extraordinary items and taxes. The EBIT margin is often used as the basis for profitability objectives of a company, if such a company aims to achieve an EBIT margin of 9% over the next two fiscal years.
Other key figures
EBIT may in turn be the basis for determining other key figures, such as the interest coverage ratio, debt service coverage ratio or return on equity.
Effects
The EBIT margin can be a component of loan terms or loan agreements under the covenants. Here, the debtor undertakes to its creditors, not to fall below a certain contractually defined lower limit of the EBIT margin. If it comes to shorter stays, there is a breach of contract ( covenant breach ), which initially mostly a healing period ( remedy / grace period ) has the result is to allow the borrower the subsequent performance of the given code. However, If this is still not a higher credit margins or even an extraordinary termination right of the creditor is triggered.