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.