UK / IFRS EBIT calculator

IFRS and FRS 102 land EBIT differently from US GAAP. IFRS 16 capitalises virtually all leases, so what was an operating lease expense under FRS 102 becomes depreciation plus interest under IFRS, lifting EBIT but leaving EBITDA roughly unchanged^[IFRS]^[FRC].

UK statutory P&L format

UK statutory accounts under FRS 102 use a slightly different P&L format: turnover replaces revenue; cost of sales sits below; operating profit is the EBIT-analogue. Companies House filings follow this format.

IFRS 16 lease accounting impact

IFRS 16 (effective 1 Jan 2019) requires lessees to recognise virtually all leases on-balance-sheet. The income-statement effect is a shift from a single operating lease expense to depreciation on the right-of-use asset plus interest on the lease liability. Net effect on EBIT: lifted (because the interest portion now sits below EBIT). Net effect on EBITDA: nearly unchanged.

UK PE LBO use of EBIT

UK PE houses standardly run covenants on a net-leverage-to-LTM-Adjusted-EBITDA basis, with Adjusted EBITDA defined in the credit agreement (almost always adds back SBC, restructuring, and one-off transaction costs). Adjusted EBIT is used for the interest-coverage covenant (typically >2.0x at close).

FRS 102 vs IFRS

Most UK private companies file under FRS 102. The headline differences from IFRS that affect EBIT are: (1) FRS 102 does not require IFRS 16-style lease capitalisation (lessees can keep operating leases off-balance-sheet); (2) FRS 102 has a simplified treatment of intangibles.

See interest coverage and primary sources.