Intermediate Accounting 14th Edition

Published by Wiley
ISBN 10: 0470587237
ISBN 13: 978-0-47058-723-2

Chapter 4 - Using Your Judgment - Comparative Analysis Case - Instructions - Page 201: c

Answer

Earnings before interest and tax (EBIT) is an operating income measure. Through adding back items that are less relevant to predicting future operating results (taxes and interest), EBIT appears as a better indicator of future profitability.

Work Step by Step

EBIT is calculated by subtracting expenses from revenue, excluding taxes and interest and therefore providing a measure of an entities' profitability.
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