# How to Calculate EBIT Margin - Tutorial, Definition, Formula, Example

## How to Calculate Earnings Before Interest and Taxes Margin - Tutorial

#### Definition:

In accounting, EBIT margin is a measure of an organization's profit which is found as earnings before interest and tax(EBIT) divided by net revenue. It helps to identify the organization yearly growth.

#### Formula:

EBIT = R - E EBIT Margin = EBIT / R Taxable Income = EBIT - I Tax Amount = Taxable Income x T Net Income = Taxable Income - Tax Amount Profit Margin = Net Income / R
###### Where,
R = Sales Revenue E = Operating Expenses I = Interest Paid T = Tax Rate

#### Example :

A company has sales of \$500000 with operating costs of \$450000, interest paid of \$6000 and a tax rate of 30%. Calculate the EBIT, Net Income, and Profit Margin.

##### Given :

Sales Revenue (R) = \$500000 Operating Expenses (E) = \$450000 Interest Paid (I) = \$6000 Tax Rate (T) = 30% = 0.3

##### To Find :

Earnings Before Interest and Taxes, Net Income and Profit Margin

##### Solution :

EBIT = R - E = \$500000 - \$450000) = \$50000 EBIT Margin = EBIT / R = (\$50000 / \$500000) x 100 = 10 % Taxable Income = EBIT - I = \$50000 - \$6000 = \$44000 Tax Amount = Taxable Income x T = \$44000 x 0.3 = \$13200 Net Income = Taxable Income - Tax Amount = \$44000 - \$13200 = \$30800 Profit Margin = Net Income / R = (\$30800 / \$500000) x 100 = 6.16 %