What is the Gross Operating Surplus (EBE)?

EBE stands for Excédent Brut d’Exploitation, the French term for Gross Operating Surplus (GOS), also known as gross operating profit. The EBE is one of the most relevant accounting indicators on the income statement. It is part of the SIG (Intermediate Management Balances) used to analyze a company’s results. This figure determines the financial health of your business, confirming or disproving the profitability of your operating cycle. Here is how to understand your company’s EBE and refine your management.

What is the EBE?

The EBE is considered an indicator of a company’s level of wealth, by assessing the amounts generated during operations. It takes into account revenue (turnover) and measures the economic performance of your business.

The EBE is traditionally calculated over the accounting period. It is the result of the difference between operating income and expenses of the same nature. Unlike operating income, the EBE does not take into account expenses related to investment policy, the effects of that policy, or exceptional expenses. This allows you to assess gross profitability and estimate the viability of your business model.

What is the EBE used for?

The EBE lets you estimate the operating capacity of your business. It must generate cash resources solely from its operations, i.e. the sale of services or goods. The resources you derive from it are used, among other things, to remunerate the capital you have invested.

If your EBE is positive, your company is profitable. Conversely, if it turns out to be negative, you need to question your management approach, since you are facing a gross operating deficit — expenses that are not covered by your revenue — and you are losing money.

The advantage of the EBE is that it gives you visibility into your company’s gross profitability, without taking your investments and any financing into account.

How do you calculate the EBE?

You can leave the EBE calculation to your accountant, but you can also calculate it yourself. You can start from your revenue, your net accounting result, or your value added. Here are the formulas to apply.

Calculating the EBE from your revenue

Revenue excluding tax

– goods and materials consumed (raw materials, merchandise, etc.)

– consumption from third parties (insurance, rent, electricity, etc.)

– personnel costs (social security contributions and salaries)

– taxes and duties

+ operating subsidies

Formula based on value added

Value added

– taxes and duties

– personnel costs

+ operating subsidies

Calculating the EBE from net accounting result

Net result

+ financial expenses

+ exceptional expenses

+ income of the same nature

+ depreciation and provision allowances

+ reversals of provisions and depreciation

+ other expenses of the same nature

– other operating income

How do you make use of your company’s EBE result?

Beyond assessing your company’s profitability, the EBE helps you to:

• assess cost control;
• build statistics to measure your self-financing capacity;
• analyze the performance of operating activities over a given period;
• estimate structural changes in operations by separating the result from a decrease or increase in your business volume;
• compare your performance against companies operating in the same industry.

How often should you calculate the EBE?

It is worth calculating your EBE when you set up your company. You will find this figure in the financial forecast budget you put together to present to the financial partners you approach to fund your startup. It is just as essential to calculate the EBE when you take over a company, as it is a key valuation indicator.

Afterward, it is recommended to establish the EBE alongside the annual balance sheet. This lets you chart your company’s growth curve. If the trend is not favorable, you need to reconsider your management to turn things around and avoid, at all costs, letting your EBE turn negative.

Lastly, if you are looking for financing, it is wise to draw up a forecast EBE to include in your business plan to convince your prospective future partners.

The role of the EBE in calculating a company’s financial ratios

By calculating the EBE/revenue (excluding tax) ratio, you get your profitability rate; by calculating the EBE/capital invested ratio, you get your gross return rate.

The EBE is also factored into calculating the margin rate, break-even point, financial leverage ratio, and break-even threshold. You can ask your accountant or chartered accountant for help with all these calculations, since they give you crucial data on your company’s health:

• ROCE (Return On Capital Employed), which represents the return on investments;
• net debt, letting you assess your ability to meet long-term financial commitments;
• the operating cash flow/EBE ratio, which measures the ability to convert EBE into cash;
• financial expenses/EBE, to measure the impact of expenses on your gross operating surplus;
• the EBE/revenue ratio, which measures your operating profitability.

Do not hesitate to get help from your accountant or chartered accountant to calculate your EBE, as it then feeds into many highly relevant statistics that help you manage your business.