EBIT

EBIT (Earnings Before Interest and Taxes), or operating profit, measures a company's operational performance after depreciation and amortisation charges but before financial costs and taxes. It represents the income generated by the operating activity, independent of financing structure and tax policy. In business valuation, EBIT is the starting point for computing NOPAT (Net Operating Profit After Tax), which feeds directly into free cash flow in the DCF model. It differs from EBITDA in that it reflects the depreciation of fixed assets invested in the business.

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Example: a Swiss services company presents EBITDA of CHF 3.0 million and depreciation charges of CHF 600,000. Its EBIT is CHF 2.4 million. With an effective tax rate of 14%, NOPAT amounts to CHF 2.06 million — the base cash flow for the DCF model. Working capital changes and capex are then deducted to arrive at the unlevered free cash flow discounted at the WACC.

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Hectelion uses normalised EBIT as the systematic starting point for free cash flow calculation in DCF valuation models.