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 %

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