EBIT (earnings before interest and taxes)

BDC says a company’s EBIT can be compared with that of other companies in the same industry to judge how well it is doing. BDC defines it as the amount of profit remaining from total revenue after deducting all expenses except interest and income taxes. BDC adds that EBIT appears on the income statement before deducting interest and expenses or revenues from one-time events.

How it differs from EBITDA

BDC calculates EBITDA by adding interest, taxes, depreciation and amortization back to net profit. EBIT stops one step earlier: depreciation and amortization stay deducted. In BDC’s income statement example, depreciation is subtracted from EBITDA on the way to income before taxes. BDC also says bankers use EBIT as a secondary figure when deciding whether to provide more debt, with EBITDA as the primary figure. See depreciation and amortization.

What to ask

• Which earnings measure the lender’s ratio uses, EBIT or EBITDA.
• Whether the seller’s EBIT includes one-time items, and how the seller supports each one.
• How the figure ties back to the filed statements; the EBITDA add-backs answer covers adjustments.