Hello everyone!
I am building an operating model and have one important question I need to get answered before I proceed.
Is it correct that:
<span class='keyword_link'><a href="/resources/skills/accounting/operating-income">Operating Income</a></span> + Other Income /(Expense) = <span class='keyword_link'><a href="/resources/skills/finance/ebit">EBIT</a></span>
I am attempting to include both operating income and EBIT in my projected income statement. This makes sense to me, just want to confirm since I couldn't find a reliable source on the internet backing this up.
Generally 'operating income' is equal to EBIT. EBITDA, therefore, is EBIT + DA, where 'DA' is equal to depreciation and amortization..
EBITDA is generally used as a proxy for operating cash flow, but incorrectly so.
Sorry totally misphrased my question, edited the discussion topic. Been working in excel too long...
Operating income doesn't include other income while EBIT does though, right?
This is where "attention to detail" comes into play. You need to examine the income statement thoroughly and determine what is actually an 'operating' expense. Sometimes companies will throw non-operating expenses or income in operating expenses, though they are not really operating ("core") activities (e.g., trucking companies throw asset dispositions in operating expenses).
Whether you want to include extraordinary items is up to you (or your boss). Be careful because interest income and expense is usually in other income, so don't just add the subtotals of operating income and other income/expense.
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