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What Is EBIT Margin?

what is ebit margin

Definition of EBIT Margin

  • EBIT margin stands for Earning Before Interest and Tax margin.
  • This margin helps stakeholders understand the cost of running the firms as well as profitability.
  • The higher the EBIT the better it is for the firm.

What is the Formula for the EBIT Margin?

  • EBIT margin is calculated by dividing EBIT by revenue.

EBIT margin = EBIT / Revenue 

  • EBIT is calculated by subtracting COGS and operating expenses from the revenue. 

                        EBIT = Revenue − COGS − Operating Expenses

EBIT Margin in Practice

  • Vault Purifier has a total revenue of $80,000 this year, their COGS is $50,000, and their other operating expenses including labor wages are $9,000 in total. What is Vault Purifier’s EBIT margin?
  • Vault Purifier EBIT = $80,000 – $50,000 – $9,000 = $21,000
  • Vault Purifier EBIT margin = $21,000/$80,000 = 16.26%
  • The margin should be compared to the other firms in the industry for it to be more meaningful.