What is EBIT?

As a commercial property investor, understanding financial metrics is critical for assessing investment opportunities and the health of their property or even their investment business. One of the most important metrics to know is EBIT or Earnings Before Interest and Taxes.

This key figure provides insight into an asset or business’s profitability, helping investors make informed decisions, and also allows you to understand a range of other valuable metrics (such as your property or business’s Interest Coverage Ratio (ICR)—and this, for example, is crucial to know when applying for a commercial loan).

What does EBIT mean?

EBIT represents a company or property’s operating profit before accounting for interest expenses and tax liabilities. It’s often referred to as operating income, operating profit or (for properties) total rental income. By focusing solely on core operations or gross rent, EBIT provides a clear picture of how efficiently a business generates profit from its day-to-day activities or a property from its annual rental income.

For commercial property investors, EBIT can also reveal how well a tenant’s business performs, making it an essential factor when assessing tenant reliability or evaluating the viability of new tenants. A strong EBIT suggests the business has a healthy cash flow to meet rent obligations and other operational expenses.

How to calculate EBIT

Calculating EBIT is straightforward. Use the formula:

EBIT = Revenue – Operating Expenses (excluding interest and taxes)

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Save yourself the notepad space. Use our free tool to calculate your EBIT.

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For example, if a property earns $1,000,000 in total rental income and has $600,000 in operating expenses (things like maintenance and repairs, insurances—but excluding interest and taxes), its EBIT would be:

$1,000,000 – $600,000 = $400,000

This figure reflects the property’s core profitability, offering a clean view of operational success.

EBIT vs EBITDA: What’s the difference?

While EBIT focuses on earnings before interest and taxes, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) takes it a step further by adding back non-cash expenses like depreciation and amortisation.

For property investors, EBIT is often more relevant because it reflects a property’s, tenant’s or business’s operational strength without adjustments for long-term asset depreciation or amortisation.

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EBIT is a powerful metric that provides valuable insights into a tenant or a property’s investment or financial health. By understanding and calculating EBIT, you can make smarter decisions about your commercial property investments, mitigating risks and weighing up your choices of acquisitions.

To quickly assess a property’s profitability or evaluate your own investments, try our Earnings Before Interest & Tax (EBIT) calculator above.