EBIT and Operating Profit

CFA Level II Equities
#1

Hi all,

Can I say that it has been implicitly assumed in the syallbus that EBIT is taken to be synomous with Operating Income. The reason for this question is because I recalled back in my Level I study, one of the schweser book (if my memory doesnt fail me, one of the professor note in FRA book) states that EBIT in a strict sense include non-operating items (i.e. non-operating expenses, non-operating incomes). In equation it will be:

Operating Income - non-operating expenses +non-operating incomes = EBIT

And it seems that EBIT is the last item before interest and taxes to arrive at Net Income.

However, in Book 3 (Equity) of Schweser 2015 Page 148, the professor note states that many noncase adjustments occur on the income statement below EBIT which leads me to ponder whether they are using EBIT and operating income interchangeably.

Anyone?

Cheers,

Ernest

#2

EBIT is not the last line, and EBIT is not nesscarily operating income. It all depends on the classification of the company. But generally, operating income would be reported before non-operating income, but both may make up EBIT if the nature of non-operating income is recurring. Non-recurring items are generally reported after tax but before net income.

Just know that EBIT includes only items that affect CFO sooner or later, while operating income may (or may not) include non-operating recurring items that are still part of CFO (but not related to core business activity of sales and COGS).

Generally, you should know for the exam that EBIT includes only recurring items on the income statement.