EBIT vs. EBITDA: An Overview

Earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA) are two of several metrics available to analyze the profitability of a company. They share similarities but the differences in their calculations can lead to varied results.

EBIT

Earnings before interest and taxes (EBIT) is a company's net income before income taxes. It's used to analyze the performance of a company's core operations༒ without tax expenses and the costs of capital structure influencing pro꧃fit.

EBITDA

Earnings before♒ intere🦩st, taxes, depreciation, and amortization (EBITDA) is another widely used indicator that measures a company's financial performance and project earnings potential. EBITDA reflects the profitability of a company's operational performance before deductions for capital assets, interest, and taxes.

Special Considerations

Both EBIT and EBITDA strip out the cost of debt financing and taxes but EBITDA takes another step by adding depreciation and amortization expenses back. Depreciation isn't captured in EBITDA where two companies have varying amounts of fixed assets so EBITDA can be a better number to compare operating performance.

澳洲幸运5官方开奖结果体彩网:Companies with high fixed assets will have higher depreciation and therefore have lower EBIT than companies with ꦦlower levels of fixed assets. EBITDA is helpful because it provides an apples-to-apples comparison of performance before depreciation is deducted.

EBIT is sometimes used interchangeably with 澳洲幸运5官方开奖结果体彩网:operating income but the two can be different depending on the company. Operating income doesn𒐪't include gains or losses from non-core activities such as equipment𓃲 sales or investment returns but net income used in calculating EBIT does include them.

EBT

EBIT and EBITDA are also different from earnings before taxes (EBT) which reflects the operating profit that's been realized before accounting for taxes. EBT is calculated by taking net income and adding taxes back in to calculate a company's profit.

By removing 澳洲幸运5官方开奖结果体彩网:tax liabilities, investors can use EBT to evaluate a firm's operating performance after eliminating a variable outside its control. This is most useful in the United𓆏 States for comparing companies that might have different state taxes or federal taxes. EBT and EBIT are similar and diff🍎er in the inclusion of interest expenses.

EBIT vs. EBITDA Example

Let's look at a portion of the 2021 income statement for McDonald's. The net income for the year came in at $7.55 billion. Taxes were $1.58 billion, interest was $1.19 billion, and depreciation and amortization was $330 million.

McDonald's EBIT for 2021 was $10.32 billion ($7.55 billion + $1.58 billion + $1.19 billion). The company's 2021 EBITDA was $10.65 billion ($7.55 billion + $1.58 billion + $1.19 billion + $330 million).

The Bottom Line

Earnings befor📖e interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA) are very similar metrics used to measure the profitability of a company. Depreciation and amortization are critical components in their comparison. EBITDA adds these factors back in but EBIT does not. Both measures can provide valuable information to investors.