Individual Stocks

Price / Earnings Ratios and Other Calculations

What is “EBIT”?

Earnings Before Interest and Taxes, or EBIT, is used as a metric to understand a company’s financial position. When you try to understand the financial health of a company, you can look at cash flows and net income or profits, principally the way in which companies may perform in managing their tax payments in order to improve their financial performance. Some companies excel at managing their tax liabilities, which may make their financial performance appear better than it is. Many experts generally recommend looking at a company’s earnings before it accounts for items such as taxes and interest expense payments to finance various aspects of an operation. Do not consider interest, because a company’s management can select many different and creative ways to finance loans. Do not consider taxes; many times taxes may spill over to the following year, or the company may be very aggressive in managing its tax payments in order to change its ultimate profitability.


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