EBIT vs Operating Income

The key difference between EBIT and Operating Income is that it refers to the business's earnings earned during the period without considering the interest expense and the tax expense of that period. In contrast, operating income refers to the income earned by a business organization during the period under consideration from its principal revenue-generating activities. It does not consider non-operating income and non-operating expenses.

EBIT stands for Earnings before interests and taxes. It is synonymous with operating profit as it doesn't consider the taxes and interest expenses. Therefore, EBIT is an indicator used for calculating a company's profitability, and we can measure it by reducing the operating expenses from revenue.

• EBIT = Revenue – Operating Expenses
• Operating expenses include rent of the company premises, equipment used, costs through inventory, marketing activities, paying employee wages, insurance, and funds allocated for R&D.
• It can also be expressed as EBIT = Net Income + Interest + Taxes

We can describe Operating income as an amount that can convert into profit.

• Operating income is used to calculate the amount of profit gained by a company's operations. We can calculate it by subtracting the overall expenses from Gross Income.
• Operating Income = Gross Income – Operating Expenses
• Gross Income = Revenue – Cost of Goods Sold

People tend to believe that EBIT and operating incomes are the same. But the significant difference between them is that EBIT also includes non-operating income that the company generates. But in the case of operating income, only the income from operations is taken into account.

• One of the key differences between EBIT and Operating Income is non-operating income. EBIT also includes the non-operating income that the company generates along with the income from the company's operation. But operating income only includes the income flowing through company operations in its statement.
• EBIT is used as an indicator to determine a company's total profit-making capability. Hence, if a company or investor wants to know about the profit a company is making, EBIT can be used. On the other hand, operating income determines how much of the company's revenue can be converted into profit.
• EBIT is not an official measure according to GAAP. Hence companies use this to make small changes to it and try to incorporate a few other things to use this statement for their purposes. Whereas operating income is an official measure of GAAP, it is accurately shown, and the companies don't tinker with it.
• With EBIT, we can make a few adjustments for the factors that are not accounted for to get a broader picture. Operating income is very different in this aspect, as we cannot make any adjustments so that it can strictly adhere to the guidelines proposed. 
• EBIT can be measured by reducing the operating expenses adding interests and taxes to net income. On the other hand, operating income is calculated by subtracting overall expenses from gross income.

So, what are the significant differences between EBIT and operating income? First, let's look at the head-to-head differences between the operating income and EBIT.

When we look at both these terms, they are almost the same in most cases. Moreover, the differences are minimal as only a few adjustments are being made in EBIT while no changes are being made in operating income. So, there is very little chance of any vast difference when we compare them.

So, companies and investors don't care much when operating income and EBIT are used to analyze these financial statements because choosing one over the other will not make much difference. However, if it has to be differentiated for official use or reporting, one is officially recognized (operating income) while the other (EBIT) is not

This article has been a guide to EBIT vs. Operating Income. Here we discuss the top differences between EBIT and operating income, infographics, and a comparison table. You may also have a look at the following articles –

• Gross Income Multiplier
• Operating Income vs Net Income
• What is Ordinary Income?
• Profit vs Income