EBIT vs Net Income

Earnings Before Income Tax (EBIT) is a method that is often used to find the profit generated by a company. It is synonymous with operating profit as it doesn't consider the tax and interest expenses.

• EBIT is an indicator used for calculating a company's profitability, and it can be measured by reducing the operating expenses from revenue.
• EBIT = Revenue – Operating Expenses
• Operating expenses include rent of the company premises, equipment that is used, costs through inventory, marketing activities, paying employee wages, insurance, and funds allocated for R&D.
• Or EBIT = Net Income + Interest + Taxes

Net Income is often used to determine a company's total earnings or profit. It can be calculated by subtracting the cost of doing business from the company's revenue.

• Net Income = Revenue – Cost of doing business
• The cost of doing business includes all the taxes, the interest the company should pay, the depreciation of assets, and other expenses.
• So, a company's net income after considering all the deductions and taxes.

EBIT shows the income generated (mostly operating income) before paying taxes and interests. On the other hand, net income shows the total income generated by the company after paying the interests and taxes.

Here are the top 5 difference between EBIT vs. Net Income

Here are the key differences between EBIT and Net Income–

• One of the key differences between EBIT vs. net income is the payment of interests and taxes. EBIT is an indicator that calculates the income of the company (mostly operating income) before paying the expenses and taxes. On the other hand, net income is an indicator that calculates the total earnings of the company after paying the expenses and taxes.

• EBIT is used as an indicator to determine a company's total profit-making capability. On the other hand, net income is used to find out the company's earnings per share.
• EBIT can be measured by reducing revenue operating expenses or adding interests and taxes to net income. Net income, on the other hand, is calculated by subtracting revenue from the overall cost of doing the business.
• With EBIT, it is very tough to make an important decision just by depending on it because even though it shows the company's profitability, it doesn't consider the big picture. For example, it doesn't calculate using the whole of non-operating income and doesn't include taxes or interests. Net income is different in this scenario because it uses the whole income generated by the company and takes all the expenses into account while doing the calculation. Hence, it can be used to make some important decisions.
• EBIT is the type of indicator which is used by almost all the people who are interested in the company. The government, the debt investors, the equity investors, etc. The equity investors use net income as net income is mostly used to calculate the earnings per share of the company.

So, what are the major differences between EBIT and net income?

Let's have a look at the head to head differences between EBIT vs. Net Income–

When we look at EBIT vs. net income terms, we see that they are both derived from the income statement. They're used to conclude investing, sales, and other key business factors. So EBIT vs. net income serves useful purposes. And while finding financial ratios, we use them to get a glimpse of the financial health of a company.

And these ratios not only help the management make the course correction, EBIT, and net income and help investors and other stockholders to understand how the company is performing and where the company is lacking.

This article has guided the top differences between EBIT and Net Income. Here we also discuss the EBIT vs. Net Income key differences with infographics and a comparison table. You may also have a look at the following articles –

• EBIT vs Operating Income Differences
• EBITDA vs Operating Income | Compare
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