Question

In which situation will four companies with identical ebits have dramatically different reductions in their spare debt capacity?

Answer 1

In lower credit ratings the four companies with identical EBITs have dramatically different reductions in their spare debt capacity.

Earnings Before Interest and Taxes (EBIT): What Is It?

A measure of a company's profitability is earnings before interest and taxes, or EBIT. Revenue minus expenses, excluding tax and interest, can be used to compute EBIT. EBIT is also known as operating profits, operating earnings, and profit before taxes.

Similar to operating profit. EBIT ignores taxes and interest costs in order to concentrate entirely on a company's capacity to produce earnings from operations, omitting factors like capital structure and the tax burden. EBIT is a particularly helpful indicator of a company's capacity to produce enough earnings to be profitable, reduce debt, and fund continuous operations.

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