What is the difference between EBIT and EBITDA? - ProProfs Discuss
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What is the difference between EBIT and EBITDA?

Asked by E. Stanley, Last updated: Nov 21, 2019

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B. Mary

Health comes first, and I happen to know a lot about health.

B. MaryHealth Care manager, MHA(Master's In Healthcare Administration), Raleigh, North Carolina
Health Care manager, MHA(Master's In Healthcare Administration), Raleigh, North Carolina

Answered on Nov 21, 2019

EBIT and EBITDA are examples of profitability measures that are used for analysis and comparison. EBIT represents Earnings Before Interest and Tax. In the United States, the SEC forbids the direct correlation between operating income and EBIT.

Certain items modified in EBIT are not part of operating revenue. The commission advises to use net income that is shown in the statement of operations, serves to make EBIT more harmonious with GAAP related figures. The meaning of EBITDA is Earnings Before Interest, Tax, Depreciation, and Amortization.

This approach is used by capital intensive or highly leveraged businesses where depreciation is calculated regularly. The reason behind it is the depreciation rates of these businesses are very elevated, and they pay incredibly substantial interest on loans, which leave these firms with negative profits.

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