What Is EBIT?

EBIT, or operating profit, is the most common measure of a company's operational profitability. It captures all the costs of running the business — from cost of goods sold through to operating expenses including depreciation and amortisation — while excluding the effects of capital structure decisions and tax jurisdictions.

The formula is: EBIT = Revenue - COGS - Operating Expenses (including D&A). Alternatively, EBIT = Net Income + Interest Expense + Tax Expense. Both approaches should yield the same result.

Compared to EBITDA, EBIT provides a more conservative and arguably more realistic measure of profitability because it includes depreciation and amortisation. These non-cash charges represent the consumption of assets that will eventually need replacing. A business with heavy capital requirements may have impressive EBITDA but modest EBIT, reflecting the true cost of its asset base.

FP&A teams use EBIT for internal performance reporting, management incentive calculations, and divisional comparisons. EBIT margin (EBIT / Revenue) is a key efficiency metric that shows how much operating profit the business generates per pound of revenue.

For UK businesses, EBIT is closely aligned with the "operating profit" line in statutory accounts prepared under FRS 102 or IFRS. However, the exact definition can vary based on what items management classifies as "operating" versus "non-operating." FP&A teams should be clear about whether items like restructuring costs, impairments, or gains/losses on asset disposals are included above or below the EBIT line.