What’s the difference? And what is the format for Income statement? Sales COGS === Gross Profit SGA ==== Operating profit (EBIT) Interest === EBT Tax ==== Net Income I see no place to fit depreciation.
Sales COGS === Gross Profit SGA ==== EBITDA Depreciation ==== Operating profit (EBIT) Interest === EBT Tax ==== Net Income
Depn is tucked into COGs usually. go to the SCF to see it laid out
Gross margin = gross profit/sales GP = sales - COGS gross margin reflects how much a firm pays for inventory, materials, etc Software firms have high GMs b/c their biggest exp is R + D and that is below the GP line
operating margin = EBIT/sales reflects how much is left to company after paying COGs and overhead, salaries, bills, marketing and advtsg. spend, etc. this is important, but the test will not ask you to compute it this easily. more likely, you have to find EBIT margin then compute ROA or worse, the Dupont ROE, which everyone should have memorized by now
Yes, sometime i also get confused this. It’d better to break P/L into pieces from Gross Margin to EBITDA, then EBIT, EBT and lastly Net Income. Thanks hela168. heha168 Wrote: ------------------------------------------------------- > Sales > COGS > === > Gross Profit > SGA > ==== > EBITDA > Depreciation > ==== > Operating profit (EBIT) > Interest > === > EBT > Tax > ==== > Net Income
Gross profit - SG&A = Operating profit
Map1, Do you mean EBITDA has nothing in common with Operating Profit? Depr cost should be taken out of Operating Profit. Have i misunderstood something here? Thank you!
Be careful with EBITDA though bc it isn’t recognized in GAAP. It adds back non-cash items like depreciation and amortization because that gives a better picture on whether or not the company can service its long-term debt. A good quick tool for a LBO, but not a good indicator of cash flow.
If you have those, yes, deduct them. Operatin profit is EBIT, not EBITDA.
Depending on how you show your expenses on your income statement and general ledger (in parenthesis or not), you will either deduct or add back depreciation and amortization. Obviously, if it’s a negative number already, you would deduct. Just clarifying I’m sure that was obvious. A good thing to remember for all of us future analysts: companies that depreciate the %$#& out of their equipment like to use this number (EBITDA) as a performance measure. If you see a company with a very high EBITDA and a very LOW net income, chances are they are leveraged like a mofo and depreciate like it’s going out of style. Word.
Thanks map1 & jpfwildcat EBITDA is EBITDA not EBIT because it plus depr cost without income tax on it, right? In practice, we use EBIT in all computerize of ratios. I agree that EBITDA is not a good indicator of cash flow but according to its formula EBITDA = Net Income plus Depr Cost plus Amortization. It seems that EBITDA equal to CFO. Why i am so confusing? Pls anyone kindly explain more detail the main difference between EBITDA and EBIT in theory and practice?
EBITDA is not equal to CFO (cash flow from operations) because it does not take into account working capital (current assets-current liabilities). In other words, while EBITDA is a good indicator of a company’s solvency (long-term; to cover long-term debt, i.e. debt-coverage ratio) it is NOT a good indicator of liquidity (short-term debt) because it leaves out net working capital. Don’t confuse yourself with EBITDA too much, because it is not recognized by GAAP. It overstates cash flow and can be easily manipulated. It’s just a measure to report profitability for some companies.
Depreciation is not tucked into cost of goods sold either, that is incorrect.
jpfwildcat Wrote: ------------------------------------------------------- > EBITDA is not equal to CFO (cash flow from > operations) because it does not take into account > working capital (current assets-current > liabilities). In other words, while EBITDA is a > good indicator of a company’s solvency (long-term; > to cover long-term debt, i.e. debt-coverage ratio) > it is NOT a good indicator of liquidity > (short-term debt) because it leaves out net > working capital. > > Don’t confuse yourself with EBITDA too much, > because it is not recognized by GAAP. It > overstates cash flow and can be easily > manipulated. It’s just a measure to report > profitability for some companies. CORRECT