Operating profits or EBIT is used to measure a firm's profits on assets because it does not include the firm's cost of debt financing.

Question

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EBIT (earnings before interest and taxes) is a measure of a firm's profitability that excludes the cost of debt financing. This makes it a useful metric for comparing firms with different capital structures or levels of debt. However, it is important to note that EBIT does not take into account other expenses such as depreciation, taxes, or interest income.

Operating Profits or EBIT Is Used to Measure a Firm's