finance
Operating Profit (EBIT)
Profit left after operating expenses, before interest and tax. Measures whether the core business works.
Definition
Operating profit, also called EBIT (Earnings Before Interest and Tax), is what remains after subtracting COGS and all operating expenses (payroll, rent, marketing, licensing, insurance, depreciation) from revenue. It excludes financing costs and tax. It matters because it shows whether the core business is profitable, independent of debt structure or tax rate. Two companies can post the same net profit while one is operationally healthy and the other relies on debt or tax shields. Negative operating profit with positive gross margin signals bloated overhead. EBIT is the foundation for EBITDA and most valuation models.
In your business
- →Track monthly, compared to gross profit
- →If turning negative, audit overhead - tool subscriptions and headcount first
- →Every new expense should clear your operating margin as a hurdle rate