Earnings before interest and taxes
EBIT
In one sentenceNet profit with interest and Zakat or tax added back, close to the operating profit the business earns before the cost of financing.
Simply put
You can reach it from the top of the income statement (sales minus all operating expenses including depreciation), or from the bottom (net profit plus interest and Zakat or tax).
It is the basis for calculating interest coverage, because it is the amount available to pay interest before anything else.
Worked example
A distribution business made a net profit of 200,000 SAR, and it had loan interest of 60,000 SAR and Zakat of 40,000 SAR.
Net profit200,000 SAR
+ Interest60,000 SAR
+ Zakat40,000 SAR
EBIT = 200,000 + 60,000 + 40,000300,000 SAR
Formula: Net profit + interest + Zakat or tax
Don't confuse it with
Earnings before interest, taxes, depreciation and amortizationEBITDA also adds back depreciation and amortization, so it is larger than EBIT.