EBIT vs EBITDA
Each, defined
EBIT
EBIT is a profitability metric, calculated as Net income + Interest expense + Income tax expense. Close to operating income, but also carries other non-operating income and expense. Non-GAAP.
Formula: Net income + Interest expense + Income tax expense
EBITDA
EBITDA is a profitability metric, calculated as Net income + interest + income taxes + D&A (≈ operating income + D&A with no other non-operating items). Non-GAAP — see below.
Formula: Net income + interest + income taxes + D&A (≈ operating income + D&A with no other non-operating items)
Side by side
| EBIT | EBITDA | |
|---|---|---|
| Formula | Net income + interest + taxes | EBIT + depreciation + amortization |
| Depreciation and amortization | Deducted | Added back |
| Typical ratio | Interest coverage | Net debt ÷ EBITDA |
Building EBIT and EBITDA up from net income
A company with $610,000 of net income, $90,000 of interest and $180,000 of income tax has EBIT of $880,000. Its $140,000 of depreciation and $60,000 of amortization take EBITDA to $1,080,000.
| Line | Amount |
|---|---|
| Net income | 610,000.00 |
| Add back interest | 90,000.00 |
| Add back income tax | 180,000.00 |
| EBIT | 880,000.00 |
| Add back depreciation | 140,000.00 |
| Add back amortization | 60,000.00 |
| EBITDA | 1,080,000.00 |
How they relate
Both strip out financing and tax so companies with different debt and tax positions can be compared. EBITDA goes one step further and strips out the cost of using the company's assets.
For an asset-light software company the two are close. For a company with fleets, factories or acquired intangibles, the gap is large — and so is the cost EBITDA ignores.
Questions
- Is EBIT the same as operating income?
- Usually, but not always. EBIT can include non-operating gains and losses that operating income excludes. When there are none, they are the same figure.
- Which one do lenders use?
- Interest coverage is typically EBIT ÷ interest expense; leverage covenants usually use EBITDA.
Also confused with these
See it computed
Worked through: the calculators, the journal entries and the tools that use these terms.
- EBIT calculatorEBIT is a profitability metric, calculated as Net income + Interest expense + Income tax expense.Calculator
- EBITDA calculatorEBITDA is a profitability metric, calculated as Net income + interest + income taxes + D&A (≈ operating income + D&A with no other non-operating items).Calculator
Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.