Question

what is the difference between EBIDTA, EBIT and net income, and why seperate these components?

Answer 1

difference between EBIDTA, EBIT and net income, and why separate these components?

EBIDTA = EARNINGS BEFORE INTEREST DEPRECIATION TAX AMORTIZATION

EBIDTA- depreciation and amortization= EBIT

EBIT = EARNINGS BEFORE INTEREST AND TAX.

EBIT - interest expense and tax = Net Income.

Net Income = Earnings Available for equity shareholders.

So the basic difference is the different components attached like depreciation and amortization, interest expense and tax.

We need to differentiate it because of different use to different stakeholders. For a debt holder or Government EBIT is useful. While for Equity shareholders the Net Income is useful.

For prospective investors/Analyst in business for the profitability of the company & comparing it with other companies in the same industry.