EBITDA

CFA Level I
#1

Is EBITDA net of investment income or is it just operating profit before Depreciation and Amortization? Thanks a lot

#2

EBITDA = Earnings before interest taxes Depr. and Amort. So i believe it is not net of investment income.

#3

for a company whose primary business is not investments then EBITDA should be wihtout the investment income and it should be included in the other income section

#4

Usually, operating profit only includes revenues and expenses related to operations. On the other hand, EBIT (or EBITDA) also include non-operating stuff.

#5

Thanks so much

#6

it is above the investment income line.

#7

But why EBIT is after investment income? EBIT = Operating Income +(-) Other Income (Loss) +(-) Extraordinary Income (Loss) source: http://www.ameritradefinancial.com/educationv2/fhtml/learning/uincomestates.fhtml

#8

Operating income includes all the revenues and expenses related to operating activities (i.e., the company’s core business). EBIT is operating income plus all other revenues and expenses exclusing interest expense and tax expense. So, let’s say that Company A has a minority stake in Company B, and that Company B pays Company A a dividend. This dividend is not related the Company A’s core business, so it is not in operating income. However, it is included in EBIT, as some kind of investment income. Usually, I view a big discrepancy between operating income and EBIT as a red flag as ultimately, a company should generate the bulk of its profit from its core business.

#9

So, EBIT is inclusive of other income and EBITDA is not? Is that what we can conclude?

#10

No, the only difference between EBIT and EBITDA is depreciation and amortization expenses (they are included in EBIT but not in EBITDA). The rest (including non-operating revenues and expenses) is the same. In financial statements, it is very rare to see EBITDA mentioned; it is mainly a metric used for analysis purposes. So typically, you’ll have EBIT (which includes operating profit plus other stuff except interest and tax expenses), and you’ll add up depreciation and amortization expenses to get to EBITDA, which is more comparable across companies and industries with different accounting methods.

#11

frenchriviera, you are awesome. Thanks alot