What is EBIT Margin
EBIT Margin represents the portion of total revenue that remains as EBIT (Earnings Before Interest and Taxes). It serves as a profitability indicator, specifically focusing on operational earnings. Compared with EBIT, which tells you “how much” in raw dollars the company has earned operationally, EBIT Margin informs you “how well” the company has performed relative to its revenue. That makes it an excellent tool for comparing the core profitability of different companies.
EBIT Margin Formula
Before we derive the EBIT Margin formula, we must know how to calculate the EBIT. The formula for Earnings Before Interest and Taxes is:
EBIT = Net Income + Interest + Taxes
Or:
EBIT = Total Revenue − COGS − Operating Expenses
Both approaches will give the same result.
And the EBIT Margin formula is:
EBIT Margin = EBIT / Total Revenue × 100%
(the first method we used in our EBIT Margin calculator)
Therefore, the complete formula is:
EBIT Margin = (Total Revenue – COGS – Operating Expenses) / Total Revenue × 100%
(the second method we used in this calculator)
Or
EBIT Margin = (Net Income + Interest + Taxes) / Total Revenue × 100%
(the third method we used in this calculator)
All there three methods should return the same result. Our EBIT Margin calculator is aimed to give stakeholders a comprehensive look into a company’s operational efficiency and core profitability.
EBIT Margin Calculation Example
To demonstrate how to calculate EBIT Margin using the three methods we introduced, let’s consider a hypothetical company, XYZ Corp. Its financial data is:
- Net Income: $50,000
- Interest: $5,000
- Taxes: $10,000
- Total Revenue: $100,000
- COGS (Cost of Goods Sold): $15,000
- Operating Expenses: $20,000
EBIT = Net Income + Interest + Taxes = $50,000 + $5,000 + $10,000 = $65,000
Using Method 1:
EBIT Margin = EBIT / Total Revenue × 100% = $65,000 / $100,000 x 100% = 65%
Using Method 2:
EBIT Margin = (Total Revenue − COGS − Operating Expenses) / Total Revenue × 100% = ($100,000 – $15,000 – $20,000) / $100,000 x 100% = 65%
Using Method 3:
EBIT Margin = (Net Income + Interest + Taxes) / Total Revenue × 100% = ($50,000 + $5,000 + $10,000) / $100,000 x 100% = 65%
Each method provides a unique perspective, and they all should come to the same result.
You can compare a company’s EBIT Margin with its industry peers to analyze its operational efficiency. Or you can examine its EBIT Margins in different periods to understand the company’s performance trend. We hope our calculator can be your helpful tool in determining a company’s financial health.
