Differentiate between EBIT AND EBITDA.

The major differences between EBIT and EBITDA are as follows −

EBIT

• EBIT refers to Earnings Before Interest and Tax.

• It measures company’s profit.

• Operation results are represented on accrual basis.

• EBIT is defined as difference between revenue and operating expenses.

• Depreciation/amortisation is taken into account.

• When capital intensive is less, financial markets gives priority to this ratio.

EBITDA

• EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation.

• It measures actual operating performance of a firm.

• Operation results are represented on cash flow basis.

• EBITDA is defined as difference between revenue and operating expenses.

• Depreciation/amortisation are not taken into account.

• When sectors are capital intensive, financial markets will emphasize this.