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EBIT and EBITDA explained simply

admin by admin
June 12, 2020
in Tổng Hợp
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EBIT and EBITDA explained simply



What do EBIT and EBITDA mean? How to calculate EBIT and EBITDA? Why are the financial metrics EBIT and EBITDA important to measure the financial success of a company? Why do some companies use EBIT (Earnings Before Interest and Taxes) and others EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)? What is the purpose of the financial statements of a company: income statement, balance sheet, and cash flow statement? What are EBIT and EBITDA used for in business?

Both EBIT and EBITDA are measures of profitability, along with terms like gross profit and net income. They are reported in the income statement (or “Profit & Loss statement”, “P&L”), an overview of the profit or income that you generate during a period.

To calculate EBIT and EBITDA, many companies would present their income statement in the following way:
Revenue minus Cost Of Sales equals Gross Profit.
Gross Profit minus S,G&A and R&D equals EBITDA.
EBITDA minus Depreciation & Amortization equals EBIT.
EBIT minus Interest and Taxes equals Net Income.
Please be aware that different companies use different terminology, so what you see here might be different from what your company is using.

EBIT is Earnings Before Interest and Taxes. Interest is excluded, as it depends on your financing structure. How much did you borrow, and at what interest rate? Taxes are excluded, because it depends on the geographies that you work in.

EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. Just like EBIT, it excludes Interest and Taxes. Furthermore, depreciation and amortization are excluded, because they depend on the historical investment decisions that a company has made, not the current operating performance.

EBITDA is a meaningful metric for capital-intensive industries.

In the video, we look at an example of using EBIT and EBITDA in financial reporting, by reviewing the 2015 annual report of the Maersk Group (CPH: MAERSK-B), a company headquartered in Denmark and operating globally.

What do business and finance people use EBITDA for? Besides being a metric to represent ongoing operating performance, it is often mentioned as part of M&A (or Mergers & Acquisitions) news. A quick-and-dirty way to calculate the value of a company is by using a multiple of EBITDA. This can help you to get to a ballpark number, but I would advise to always do a more thorough analysis and a more thorough valuation of a company, as there are a lot of “ifs” connected to using an EBITDA multiple… you are assuming the profitability and the industry does not change, you exclude the impact of working capital (which could go up dramatically for a fast-growing company), and you exclude the cash that you need for capital expenditures on an ongoing basis for the company.

Related videos in the Finance Storyteller series:
EBITDA example
EBIT-EBITA-EBITDA

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

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Comments 41

  1. Richard Humphrys says:
    2 years ago

    You need to hire an artist

    Reply
  2. shanks008 says:
    2 years ago

    Thanks for this, I lso wanted to know what is Adjusted EBITDA ? in a similar easy story telling way 🙂

    Reply
  3. Pradeep Menon says:
    2 years ago

    Another excellent video.

    Reply
  4. Diego Castro says:
    2 years ago

    Thank you for making this!

    Reply
  5. Friderikas says:
    2 years ago

    Simple yet great explanation on EBIT and EBITDA without the need to decipher accounting textbooks 📚🙏✌️

    Reply
  6. All Gravy says:
    2 years ago

    🙂 I have no need to know what EBIT or EBITDA is, but I enjoyed watching this

    Reply
  7. MrDabag001 says:
    2 years ago

    EBITDA still sounds like something Latka from Taxi would say.

    Reply
  8. Ivan Hanák says:
    2 years ago

    This was very explanatory! I finally get it, thanks!

    Reply
  9. Navaneetha Krishnan K says:
    2 years ago

    Really appreciate your videos. Always used when I want to get my fundamentals right

    Reply
  10. BE GOOD says:
    2 years ago

    Thank you . It's easy to understand. Even some words are too difficult for me to catch as my mother language is not English. But in general this video is very helpful. Thank you so much.

    Reply
  11. Ti A says:
    2 years ago

    Quick and easy. Thanks for the review!

    Reply
  12. John K says:
    2 years ago

    Thats the best truck I ever seen!!!

    Reply
  13. santiago hernandez says:
    2 years ago

    That is one beautiful truck

    Reply
  14. Alex Hales says:
    2 years ago

    Simple and to the point. Good Video.

    Reply
  15. Robert Bell says:
    2 years ago

    Though often shown on an income statement, it is not considered part of the Generally Accepted Accounting Principles (GAAP) by the SEC. In other words, it is bullshit.

    Reply
  16. Kory Vogel says:
    2 years ago

    If I see Alec Baldwin’s stupid face again I’m throwing tomatoes at him

    Reply
  17. huch moz says:
    2 years ago

    Could anyone please englighten me on whether the interest in the EBIT or EBITDA refers to interest expenses only or both the interest expenses & interest income (i.e. net of interest) ???

    Reply
  18. Dr Lucy, CPT says:
    2 years ago

    Fantaistic – made so so simple! Thank you

    Reply
  19. Bubble Gum says:
    2 years ago

    Thanks for this 🙂

    Reply
  20. pigslefats says:
    2 years ago

    Don't understand why depreciation and interest would be excluded, notwithstanding your explanation. Revenue to the extent it is reported would not be generated without the capital and finance (cost of which is depreciation and interest) These are relevant expenses.

    Reply
  21. The Finance Storyteller says:
    2 years ago

    Lots of exciting and helpful new videos coming up! Be sure to click the like button, subscribe and turn on notifications to ensure you don't miss anything. Learn more by watching my EBITDA example video https://www.youtube.com/watch?v=7e_6qEo1grI and my EBITDA calculation video https://www.youtube.com/watch?v=eH4ex5q_j1w and my EBITA video https://www.youtube.com/watch?v=nImp51zYcy4

    Reply
  22. Troll Face says:
    2 years ago

    that is a LOVELY truck 🙂

    Reply
  23. The Finance Storyteller says:
    2 years ago

    Should companies focus more on EBITDA as one of their main financial metrics? Yes/no? Why? Let me know by commenting below.

    Reply
  24. Langz T says:
    2 years ago

    currently writing a report for uni and i can honeslty say that I learnt more from this video than my lecturer, and shes amazing!! great work

    Reply
  25. Mwiinga Cheelo says:
    2 years ago

    Great!

    Reply
  26. Chris Dennett says:
    2 years ago

    Very clear

    Reply
  27. James Perry says:
    2 years ago

    Wow! This is super! I so am inspired to watch more and more of ur videos. Tysm.

    Reply
  28. Wg Mentis says:
    2 years ago

    the best finance videos i have found in youtube so far!!! man you are great!!!

    Reply
  29. Rob Morrison says:
    2 years ago

    Very helpful thank you

    Reply
  30. Jordie Pink says:
    2 years ago

    I just used this free business valuation tool, https://www.infovera.com/business-growth

    Reply
  31. DogBellz says:
    2 years ago

    For someone that absolutely hates this stuff, but needs to understand it, this was amazing. Great job!

    Reply
  32. Alicia Williams says:
    2 years ago

    This was very informative and simple.  It was very helpful to understand what I thought would be a complicated theory of understanding.  Thank you.  It is greatly appreciated.

    Reply
  33. Tammie Hester Moody says:
    2 years ago

    Very good. I will reference this video and your channel in the future.

    Reply
  34. Texas Aggie says:
    2 years ago

    Nicely presented for easy understanding

    Reply
  35. Doug Haritopulos says:
    2 years ago

    Good thank you

    Reply
  36. Joe Foster says:
    2 years ago

    Well that was great! Thank you!!

    Reply
  37. Scarlett Kang says:
    2 years ago

    Wow! This helped me understand my course better 🙂 Thank you

    Reply
  38. Aniruddha Ayyar says:
    2 years ago

    Thank You Sean Connery 🙂

    Reply
  39. Scholarly Reader says:
    2 years ago

    Very clear and educational. Thank you professor.

    Reply
  40. munxunyang says:
    2 years ago

    This has been well-explained! I really appreciate it and keep up the good work.

    Reply
  41. Osaro Oyegun says:
    2 years ago

    OMG, the best explanation ever! I'm hooked. Thank you so much! This channel is Like A***

    Reply

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