Definition
EBIT is operating profit before interest and taxes. It is used to compare operating performance across different capital structures.
Formula
EBIT = revenue - operating expenses (excluding interest and taxes)
Example
Revenue $5M and operating expenses $3.6M yields EBIT of $1.4M.
How to use it
- EBIT excludes financing choices, so it is useful for comparability.
- Use EBIT with interest coverage ratios to test debt capacity.
Common mistakes
- Mixing one-time items into operating expenses without disclosure.
- Comparing EBIT across companies with different revenue recognition.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "EBIT (Operating Profit)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., WACC explained: how to estimate a discount rate for DCF) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Option Pool Shuffle Calculator: Estimate founder dilution impact when the option pool is increased to a target percent of post-money (simplified).
- SAFE Conversion Calculator: Estimate how a SAFE converts in a priced round using a valuation cap and/or discount (simplified).
- Convertible Note Conversion Calculator: Estimate how a convertible note converts in a priced round with interest plus a valuation cap and/or discount (simplified).
- Liquidation Preference Calculator (1x): Estimate investor proceeds at exit under a simple 1x non-participating liquidation preference vs converting to common (simplified).
- Multiple Valuation Calculator: Estimate enterprise value and equity value from a metric (ARR or revenue) and a valuation multiple (with net debt adjustments).
Guides
- WACC explained: how to estimate a discount rate for DCF: A practical guide to WACC: what it is, how to compute it, and how to use it (carefully) as a DCF discount rate.
- DCF valuation: forecast cash flows, discount rate, and terminal value: A practical guide to DCF valuation and WACC discount rate choices: how to forecast FCF, choose a discount rate, and avoid terminal value traps.