Operating income vs. EBIT – what is the difference?

Operating income and EBIT are profit categories that are very similar and they are commonly used as synonyms. However, there is a slight difference. Let’s see a typical income statement of a public company:

No


Category


Amount (USD)


1Sales10.000.000
2Costs of goods sold (COGS)6.000.000
3 = 1 – 2Gross profit4.000.000
4Operating expenses (OPEX)1.500.000
5 = 3 – 4Operating profit2.500.000
6Financial income (interest income)300.000
7Financial expenses (interest expenses)200.000
8Other non – operating income15.000
9Other non – operating expenses12.000
10 = 5 + 6 – 7 + 8 – 9Profit before tax2.603.000
11Corporate income tax260.300
12 = 10 – 11Net Profit2.342.700

 

Operating profit includes only revenue made from operations of the company’s business (primarily sales). Sales are subtracted by costs of goods sold (COGS) and operating expenses (OPEX):

operating profit

How would you calculate EBIT (Earnings before interest and tax)?

You will use the following formula:

EBIT

Both EBIT and Operating profit are used as measures of profit made in business operations. However, there is a slight difference, since EBIT includes interest income, other non–operating income, and other non–operating expenses. Therefore, in our example, operating profit is 2.500.000 USD, while EBIT is 2.803.000 USD.

 

Start managing your time

FREE 14-day trial – no credit card required

Run Trial