Accounting and Key Figures
EBIT vs. EBITDA: What’s the difference?
EBIT and EBITDA are used to assess the profitability of ordinary operations, but they treat depreciation and amortisation differently. Therefore, they can provide different pictures of the same company.
2 min read · Translated from Norwegian. Read the original
EBIT and EBITDA are used to assess the profitability of ordinary operations, but they treat depreciation and amortisation differently. Therefore, they can provide different pictures of the same company.
What is EBIT?
EBIT stands for “earnings before interest and taxes”. In many Norwegian accounting analyses, EBIT is close to the operating profit. The figure includes the cost of depreciation and amortisation but excludes financing and tax.
EBIT = profit before tax + net interest expenses
The starting point and presentation may vary. Therefore, always check what items the data source has included.
What is EBITDA?
EBITDA stands for earnings before interest, tax, depreciation, and amortisation. A simplified formula is:
EBITDA = EBIT + depreciation + amortisation
By adding back these costs, EBITDA can make it easier to compare the ongoing operations of companies with different capital structures and investment histories.
When do the figures give different signals?
The difference is greatest in capital-intensive businesses with buildings, machinery, vessels, or large intangible assets. A company may show solid EBITDA but weak EBIT because its assets lead to high depreciation and amortisation. This is not just a technical detail: the business must typically invest to maintain capacity over time.
EBITDA is also not cash flow. The figure does not consider investments, changes in working capital, interest, tax, or debt repayment.
How to compare companies
Use the same definition and accounting period. Preferably compare businesses in the same industry, and look at the margins – EBIT or EBITDA divided by revenue – over several years. Large discrepancies should be investigated in the annual accounts and notes.
EBIT and EBITDA on Proffi
Proffi should show the formula behind each key figure, the accounting year, and the items included. The user must be able to see EBIT, EBITDA, revenue, cash flow, and investments together. Adjusted figures should be clearly marked and never mixed with reported figures.
Frequently asked questions
- Is EBIT always the same as operating profit?
- Often the figures are similar, but presentation and adjustments can vary. Check the definition.
- Is high EBITDA always positive?
- No. Debt, investments, working capital, and one-off items can still make the financial situation weak.