Distinguish between EBIT and net income.

The major differences between EBIT and net income are as follows −

EBIT (Earnings before Interest and Taxes)

• It evaluates profits earned through an entity.

• An operating income earned by an entity before adjustments (interests and taxes) is EBIT.

• The main purpose is to determine profit earning of an entity.

• EBIT can be defined as difference between revenue and operating expense (or) sum of net income, interest and taxes (or) difference between Earnings Before Interest Tax Depreciation and Amortisation (EBITA) and depreciation, amortisation expenses

• It is used by governments, equity holders and debt holders.

• Interest and expenses incurred are not considered.

• Cost of operating business is ignored.

• Operating expenses are considered.

Net income (Ni)

• It determines total profits made by an entity.

• It is the final income made by an entity after adjustments.

• The main purpose is to calculate EPS (Earning per share) of an entity

• Net income is defined as difference between revenue and cost of operating business (or) difference between EBT and tax expense (or) difference between total revenues and total expenses.

• It is used by equity holders.

• Interest and taxes incurred are considered.

• Cost of operating business is considered.

• Operating expenses are not considered.