Company financial statements often contain a mix of accounting adjustments, one-time events, and complex tax situations that could obscure the performance of a business’s core operations. Earnings before interest and taxes (EBIT) can help cut through any confusion by focusing on what truly matters: the profit a company generates from its main business activities.
“EBIT is central to operational profitability,” said Olayemi Dada, an audit manager at KPMG U.S. “It removes the effects of financing and taxes, and then you can see a company’s core profitability.”
For example, when comparing two retail chains—one with heavy debt and one debt-free—EBIT allows investors to assess their operational performance without all other items…
