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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.
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