EBIT formula

EBIT = Net Income + Interest expense + Income tax provision (bottom-up). Or EBIT = Operating Income + Non-operating items (middle). Or EBIT = Revenue minus COGS minus Operating expenses (top-down). The three should reconcile on any clean income statement^{[FASB ASC]}.

Top-down

EBIT = Revenue − COGS − Operating expenses

Use when you trust the operating-expense aggregate and want a sanity check against gross profit. D&A sits inside operating expenses for this formulation, so the result is GAAP EBIT, not EBITDA^[AQFS].

Middle

EBIT = Operating Income + Net non-operating income

Use when the income statement reports Operating Income explicitly. Apple, Microsoft, and most large-cap names do. See operating-income method.

Bottom-up

EBIT = Net Income + Interest expense + Income tax provision

Use when you need every input traceable to a single GAAP line. This is the version a CFO will defend in a board pack because each addback has a 10-K page reference. See bottom-up walkthrough.

Which is most defensible

Bottom-up wins for defensibility because interest expense and the tax provision are always disclosed separately. Top-down can be ambiguous when D&A is buried inside COGS for manufacturing names (manufacturing caveat).

D&A reminder

EBIT includes depreciation and amortization. EBITDA strips them. See the D&A line-item page.