Question

Under the statement of profit or loss, can EBIT be calculated by "profit before tax+finance costs"?...

Under the statement of profit or loss, can EBIT be calculated by "profit before tax+finance costs"? If it can't, how should we calculate EBIT in the statement of profit or loss when interest expense isn't stated.

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Homework Answers

Answer #1

Financing cost is also known as the cost of finances (COF). It refers to the cost, interest, and other charges involved in the borrowing of money to build or purchase assets.

Yes, EBIT can be calculated by adding Finance cost in Profit before tax (EBIT= Profit before tax + Finance Cost).

Proof-

We know that, EBIT - Finance Cost = Profit before Tax

Thus, taking Finance cost on Right hand side, we have,

EBIT = Profit before tax + Finance cost

PART B-

EBIT (Earning before Interest and taxes) do not consider Interest expense in it. If Interest expense is not stated, then we can simply deduct various cash and non cash expenses (other than interest) from the revenue to obtain Earnings before interest and taxes.

Incase of any doubt, please comment below. I would be happy to help.

Please upvote the answer if it was of help to you.

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