Operating profit

What the business earns from trading, before the cost of how it is financed and before tax. It is the number to use when comparing two companies with different debt loads, because it is measured above the interest line.

The garment exporter with ₹1,680 crore of gross profit spends ₹720 crore on selling, administration and depreciation, so operating profit is ₹960 crore on ₹4,800 crore of revenue, a 20% operating margin.

Indian statements rarely print a line labelled EBIT. Building it usually means starting from profit before tax and adding back finance costs, then deciding what to do with other income. Interest earned on surplus cash is not operating income for a manufacturer, and leaving it in flatters the margin.

The decision about other income is not a technicality, and it is where two analysts most often diverge on the same company. A firm reporting ₹840 crore of profit before tax, of which ₹210 crore is treasury income on a cash pile, has an operating business earning ₹630 crore before interest, not ₹840 crore. Valuing that company means valuing a ₹630 crore operating business and separately adding the cash that produced the ₹210 crore, because the two deserve entirely different multiples. Rolling them together values treasury deposits at fifteen times earnings.

Two analysts can compute EBIT for the same company and differ by a few percent. Say what you included.