Earnings before interest and taxes
"Okay kiddo, have you heard of a lemonade stand? Let's say you have one and it costs you $1 to make a cup of lemonade. Then you sell it for $2. That means you made $1 profit, right? That's exactly what Earnings Before Interest and Taxes (EBIT) is all about!
Imagine a bigger business like a toy store. They sell toys and make money from it. But just like with your lemonade stand, they have to pay for things like rent for the store and wages for employees. These are called expenses.
So, to figure out how much money the toy store makes, you start with how much money they bring in from selling toys. That's called revenue. Then, you subtract all of the expenses to see how much money they have left over before they pay interest (which is like a fee for borrowing money) or taxes.
That leftover money is the EBIT! It's important because it tells the toy store how well they're doing in terms of making money from selling toys, without considering other factors like interest or taxes.
So, EBIT is a shorthand way of saying how much money is made by a business before you take away fees or taxes. Just like with your lemonade stand! Pretty cool, huh?"
Imagine a bigger business like a toy store. They sell toys and make money from it. But just like with your lemonade stand, they have to pay for things like rent for the store and wages for employees. These are called expenses.
So, to figure out how much money the toy store makes, you start with how much money they bring in from selling toys. That's called revenue. Then, you subtract all of the expenses to see how much money they have left over before they pay interest (which is like a fee for borrowing money) or taxes.
That leftover money is the EBIT! It's important because it tells the toy store how well they're doing in terms of making money from selling toys, without considering other factors like interest or taxes.
So, EBIT is a shorthand way of saying how much money is made by a business before you take away fees or taxes. Just like with your lemonade stand! Pretty cool, huh?"