How to calculate EBIT (Operating Profit)?

In summary, to calculate EBIT, we need to subtract the costs of goods sold and operating expenses from sales revenue.

To determine EBIT (operating profit), we firstly need to understand the format of the income statement.

Income Statement Format

Sales revenue

LESS: Cost of goods sold

= Gross profit

LESS: Operating expenses

= EBIT (earnings before interest and tax/operating profit)

LESS: Interest

= Net profit before tax

LESS: Taxes

= Net profit after tax

LESS: Preferred stock dividends

= Earnings available for common stockholders

Therefore, to determine EBIT, all we need to do is to subtract the cost of goods sold and operating expenses from sales revenue.

Other uses for EBIT

1 – Calculate the Operating Profit Margin Ratio = Operating profit (EBIT) / Sales The operating profit margin measures how much of each sales dollar remains after all costs except for interest, tax and preferred dividends are deducted. In other words it measures how efficient the business manages its operations or how efficiently the firm manages its income statement (keeping a healthy balance between sales and costs).

2 – Calculate the Times Interest Earned Ratio = EBIT/Interest

The times interest earned ratio (Interest Coverage Ratio) measures the ability of the enterprise to meet its financial obligations (interest payments on debt that come due). is powered by Firmsconsulting is a training company that finds and nurtures tomorrow’s leaders in business, government and academia via bespoke online training to develop one’s executive presence, critical thinking abilities, high performance skill-set, and strategy, operations and implementation capabilities. Learn more at

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