Practice question · Multiple choice
Two firms have identical EBIT of 200, but Firm A has interest expense 80 and Firm B has interest expense 10. Which comparison is fair?
Hints
- What does the I in EBIT stand for?
- Interest reflects capital structure, not operations.
Show the answer
D. EBIT, which strips out financing differences
Why
EBIT exists precisely for this comparison: it measures operational profit before the financing decision kicks in. Firm A chose more debt, so it pays more interest, but operationally they perform identically.
Practise The Income Statement
The app has 5 more questions on this lesson, and keeps your place in the course. Business I is free to start.
More questions on The Income Statement
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