Differences between EBIT and EBITDA and operating profit
Posted: Wed Jan 22, 2025 10:05 am
There is a difference between the values of operating profit and EBITDA and EBIT. EBIT/EBITDA take into account operating and non-operating (aka non-operating) income and expenses minus depreciation, interest and tax payments. Operating profit is calculated excluding non-operating amounts.
Non-operating expenses and income include receipts or losses that arose outside the main activity of the enterprise. These may include profit or property damage from investing, income from a single transaction that is not related to the main area of work, cash received due to changes in the exchange rate. In this case, income or losses from the sale of basic production resources, a reserve for compensation for losses from non-repayment of debt, a decrease in the value of property are attributed to operating profit.
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Formulas for calculating EBIT, EBITDA and OIBDA
Two main formulas are used: according to IFRS and according to RAS. The results obtained will differ. According to IFRS, the amount of net profit is taken into account, taking into account taxes paid on it, interest repayment, and depreciation:
EBIT = Profit + Accrued Income Tax + Interest Payments
EBITDA = Profit + Accrued Income Tax + Interest Payments + Depreciation
As an example, let's take the financial statements of Novatek for 2020:
EBIT = 78,586 + 51,010 + 4,939 = 134,535 million rubles.
Taking into account depreciation, we get EBITDA:
EBITDA = 134,535 + 39,238 = 173,773 million rubles.
The classic calculation method is used here. More common is the use of adjusted EBITDA, which takes into account expenses and revaluations, exchange rate fluctuations. It more accurately reflects the company's earnings. Then the calculation will change:
EBITDA = Net Profit + Accrued Income Tax – Reimbursed Income Tax (if any) + Non-Operating Expenses – Non-Operating Income + Interest Payments – Interest Received + Depreciation – Asset Revaluation
At the same time, the above-mentioned Novatek report contains information on EBITDA. Its value does not coincide with the result derived using the classical formula, since it is calculated using IFRS.
The OIBDA indicator allows you to evaluate the productivity of the company's core business. It illustrates the company's position, excluding irregular expenses from the calculation:
OIBDA = Operating Income + Depreciation
According to the report of PJSC Novatek, based on operating profit of 113,012 million rubles and depreciation of 39,238 million rubles, OIBDA was: 113,012 + 39,238 = 152,250 million rubles.
Calculations of EBIT, EBITDA and OIBDA using the above formulas allow us to compare companies from the same industry, their growth or decline in different periods. However, they are not enough for a comprehensive understanding of the results of economic activity. For a complete picture, an assessment of the totality of indicators is required.
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Non-operating expenses and income include receipts or losses that arose outside the main activity of the enterprise. These may include profit or property damage from investing, income from a single transaction that is not related to the main area of work, cash received due to changes in the exchange rate. In this case, income or losses from the sale of basic production resources, a reserve for compensation for losses from non-repayment of debt, a decrease in the value of property are attributed to operating profit.
Read also!
"Marketing Tips: How to advantages of truemoney database Show That Your Product is the Best"
Read more
Formulas for calculating EBIT, EBITDA and OIBDA
Two main formulas are used: according to IFRS and according to RAS. The results obtained will differ. According to IFRS, the amount of net profit is taken into account, taking into account taxes paid on it, interest repayment, and depreciation:
EBIT = Profit + Accrued Income Tax + Interest Payments
EBITDA = Profit + Accrued Income Tax + Interest Payments + Depreciation
As an example, let's take the financial statements of Novatek for 2020:
EBIT = 78,586 + 51,010 + 4,939 = 134,535 million rubles.
Taking into account depreciation, we get EBITDA:
EBITDA = 134,535 + 39,238 = 173,773 million rubles.
The classic calculation method is used here. More common is the use of adjusted EBITDA, which takes into account expenses and revaluations, exchange rate fluctuations. It more accurately reflects the company's earnings. Then the calculation will change:
EBITDA = Net Profit + Accrued Income Tax – Reimbursed Income Tax (if any) + Non-Operating Expenses – Non-Operating Income + Interest Payments – Interest Received + Depreciation – Asset Revaluation
At the same time, the above-mentioned Novatek report contains information on EBITDA. Its value does not coincide with the result derived using the classical formula, since it is calculated using IFRS.
The OIBDA indicator allows you to evaluate the productivity of the company's core business. It illustrates the company's position, excluding irregular expenses from the calculation:
OIBDA = Operating Income + Depreciation
According to the report of PJSC Novatek, based on operating profit of 113,012 million rubles and depreciation of 39,238 million rubles, OIBDA was: 113,012 + 39,238 = 152,250 million rubles.
Calculations of EBIT, EBITDA and OIBDA using the above formulas allow us to compare companies from the same industry, their growth or decline in different periods. However, they are not enough for a comprehensive understanding of the results of economic activity. For a complete picture, an assessment of the totality of indicators is required.
Download a free selection o