EBIT vs Operating Income
I keep hearing different things and Google searches provide different answers as well. I always thought they were the same but my accounting textbook lists them as different items. Can you guys help me once and for all differentiate between the two.
what is operating income?
Operating Income is the income that is generated through a businesses' operations and is calculated as Gross Income (Revenue - COGS) minus operating expenses - depreciation and amortization. This excludes non-operating income and expenses, taxes, and capital structure expenses (interest expense).
What is Non-Operating Income?
Non-operating income is income that is generated separate from the core operations of the business. These can include dividends from investments, profits and losses from investments, FX gains and losses, and non-operating revenue and expenses.
What is EBIT?
EBIT is difficult in that it can be the same as operating income or it can be different. Earnings Before Interest and Tax (EBIT) looks to find the income from the operations of the business without taking into account the tax and capital structure of the business. For many businesses, EBIT includes non-operating income and expenses.
The easiest way to calculate EBIT is to take Net Income and add back interest and tax expense.
Difference Between EBIT and Operating Income
Due to the fact that EBIT is a non-GAAP metric (whereas operating income is GAAP) it can be reported different ways by different companies. Some companies choose to report EBIT with non-recurring expenses and other income included in the metric. Additionally, interest income may be included in EBIT (however, interest expense is always not included.)
Read More About EBIT on WSO
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