What is the Purpose of the Earnings Before Interest and Taxes, (EBIT), Tool?
Investors are looking more and more at the earnings before interest and taxes, especially during these rough economic times. The EBIT is basically a tool that helps to measure how a company or organization is doing in terms of profitability. In other words how profitable is the company. So it stands to reason that the higher that value is, (EBIT), the more profitable the company is. This tool is good for anyone wanting to compare companies and see which organization it making the most effective and efficient use of its limited or scarce resources. That would probably be the most profitable company. This is such a good measure of efficiency and should be used at all times because different companies may use different accounting measures which could for all practical purposes cover up or hide their true profitability. Every organization does not have the same taxing and financing methods and this is very important. Let’s say for example an organization has a very large debt load then the
