Definition of Ebit Margin

EBIT or Earnings before interest and taxes is a measure to assess the company’s profitability. It is also named as operating profit or income before interest and taxes. It is calculated by subtracting the cost of goods sold and operating expenses except for interest and taxes from revenue. 


Example of EBIT Margin:
Revenue                                                          $50,000

Less: Cost of goods sold                                  -$32,000

Gross profit                                                     $18,000

Less: Operating expenses                               -$7,500

Earnings before interest and taxes                 $10,500


To calculate EBIT margin we will divide the EBIT with Revenue

EBIT Margin = EBIT / Revenue = $10,500 / $50,000 = 21%


This percentage shows how strong the company is to pay its interest and taxes. However, if the company has higher debts, then the EBIT margin should be enough to cover the high-interest cost.

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