![]() This is because no one has been “paid” yet! These metrics are both BEFORE Interest Expense, Taxes, etc., since they start with Operating Income on the Income Statement: Here are example calculations for EBIT vs EBITDA for Target and Best Buy:ĮBIT and EBITDA are available to Equity Investors, Debt Investors, Preferred Stock Investors, and the Government. Net Income is just Net Income from Continuing Operations at the very bottom of the Income Statement (“Net Income to Common” or “Net Income to Parent” sometimes). How to Calculate EBIT vs EBITDA vs Net IncomeĮBIT (Earnings Before Interest and Taxes) is Operating Income on the Income Statement, adjusted for non-recurring charges.ĮBITDA (Earnings Before Interest, Taxes, and Depreciation & Amortization) is EBIT, plus D&A, always taken from the Cash Flow Statement. Usefulness – Sometimes, you want to reflect CapEx, and sometimes you want to ignore it or “normalize” it.Valuation Multiples – Some metrics pair with Enterprise Value (TEV), while others pair with Equity Value (Eq Val).Interest, Taxes, and Non-Core Business Activities – Some metrics deduct (or add) all of these, while others ignore them.IFRS creates complications (accounting changed in 2019!). Rent/Lease Expense – Some metrics deduct the full lease expense others deduct only part of it, and U.S.Capital Expenditures (CapEx) – Some metrics deduct both, some deduct neither, and some deduct one, or part of one. To Whom is the Money Available? – Equity Investors? Debt Investors? The Government? All three? Just one?.We’d summarize the key differences between these metrics as follows: EBIT vs EBITDA vs Net Income: The 6 Key Differences So, they all represent profitability or cash flow in some way, but their exact calculations and meaning differ quite a bit. Which one(s) should you use in valuation multiples when analyzing companies?”Īt a high level, EBIT, EBITDA, and Net Income all measure a company’s profitability, but the definition of “profitability” varies a lot.ĮBIT (Earnings Before Interest and Taxes) is a proxy for core, recurring business profitability, before the impact of capital structure and taxes.ĮBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a proxy for core, recurring business cash flow from operations, before the impact of capital structure and taxes.Īnd Net Income represents profit after taxes, the impact of capital structure (interest), AND non-core business activities. “Is EBIT or EBITDA better? What about Net Income? How are they different? Some of the most common interview questions related to these metrics include: Interview questions about EBIT vs EBITDA vs Net Income are some of the most common ones in investment banking interviews. ![]() 11:26: Interest, Taxes, and Non-Core Activities.3:43: Example Calculations for EBIT and EBITDA.
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