EBIT from the Cash Flow Statement
Start from Net Income at the top of the CFO section, add back D&A, then back out the income-statement interest and tax provision pulled from the notes. The reverse method exists because in private-company diligence the cash flow statement is sometimes more complete than the income statement[FASB ASC].
The reverse bridge
- Start from Net Income (top of the CFO section).
- Add Interest expense (from the income statement notes).
- Add Income tax provision (from the income statement notes).
- Result equals EBIT.
Why use this method
- Private-company diligence where the income statement is summary only.
- Sanity-checking a reported EBIT against the cash flow statement bridge.
- Reconstructing EBIT for a sub-segment from the segment cash conversion.
Failure modes
- D&A on the cash flow statement may exceed D&A reported on the income statement (purchase-accounting amortization shows up on the CFS but is buried in COGS on the IS).
- Net Income on the CFS is consolidated; if the parent reports minority interest, use the consolidated figure.
- Restructuring and impairment add-backs on the CFS are non-cash items, not GAAP EBIT adjustments. Do not conflate them.