What does earnings before interest and taxes (EBIT) measure?

Earnings before interest and taxes (EBIT) measures a company’s profitability by focusing on its operational performance without the impact of financing and tax structures. This metric provides insight into the company’s ability to generate earnings from its core business activities, allowing stakeholders to evaluate the operational efficiency and performance independently of financial leverage (interest costs) and tax strategies. By excluding interest and taxes, EBIT offers a clearer view of how well a company is performing in its day-to-day operations.

Understanding EBIT is critical for investors or analysts who wish to assess the intrinsic operational profitability of a business, making it a vital indicator of a company's earning potential. In this context, the other options do not accurately capture what EBIT measures. Total revenue does not account for expenses, total expenses alone do not signify profitability, and net income is influenced by financing and tax decisions, which EBIT specifically excludes.