The key difference between EBIT vs Net Income is that EBIT refers to earnings of the business which is earned during the period without considering the interest expense and the tax expense of that period, whereas, Net Income refers to earnings of the business which is earned during the period after considering all the expenses incurred by the company.
EBIT vs Net Income Differences
Earnings Before Income Tax (EBIT) is a method that is often used to find the profit generated by a company. It is very synonymous with operating profit as it doesn’t take into consideration 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 EBITEBITEarnings before interest and tax (EBIT) refers to the company's operating profit that is acquired after deducting all the expenses except the interest and tax expenses from the revenue. It denotes the organization's profit from business operations while excluding all taxes and costs of capital. = Net Income + Interest + Taxes
Net Income is often used to find out the total earnings or profit of a company. It can be calculated by subtracting the cost of doing business with the company’s revenue.
- Net Income = Revenue – Cost of doing business
- The cost of doing business includes all the taxes, the interest that the company should pay, the depreciation of assets, and other expenses.
- So, net income is a company’s income after taking all the deductions and taxes into account.
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.
EBIT vs. Net Income Infographics
Here are the top 5 difference between EBIT vs. Net Income
EBIT vs. Net Income Key Differences
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 find out the total profit-making capability of a company. On the other hand, net income is used to find out the earnings per share of the company.
- EBIT can be measured by reducing the operating expenses from revenue or by 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 profitability of the company, it doesn’t take the big picture into account. For example, it doesn’t calculate using the whole of non-operating income, and it also doesn’t include taxes or interests. Net income is different in this scenario because it uses the whole income generated by the company, and it also 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, and the equity investor, etc. Net income is used by the equity investors 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?
EBIT vs. Net Income Head to Head Differences
Let’s have a look at the head to head differences between EBIT vs. Net Income–
|Basis for comparison between EBIT vs. Net Income||EBIT||Net Income|
|Definition||EBIT is an indicator used for calculating a company’s profit when considering mostly the Operating Income.||Net Income is an indicator that is used to calculate the company’s total earnings.|
|Used||To calculate the profit-making ability of the company.||To calculate Earnings per share (EPS).|
|Calculation||EBIT = Revenue – Operating Expenses
EBITEBITEarnings before interest and tax (EBIT) refers to the company's operating profit that is acquired after deducting all the expenses except the interest and tax expenses from the revenue. It denotes the organization's profit from business operations while excluding all taxes and costs of capital. = Net Income + Interest + Taxes
|Net Income = Revenue – Cost of doing business|
|Result||Calculation of Income generated mostly by operating before paying interests and taxes;||Calculation of total earnings of the company after paying the interests and taxes;|
|People who use this||The government, investors in equity and debt;||Most equity investorsEquity InvestorsAn equity investor is that person or entity who contributes a certain sum to public or private companies for a specific period to obtain financial gains in the form of capital appreciation, dividend payouts, stock value appraisal, etc..|
EBIT and Net Income – Final Thoughts
When we look at EBIT vs. net income terms, we would see that they are both derived from the income statementThe Income StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.. They’re used to reach a conclusion about investing, sales, and other key factors of a business. EBIT vs. net income serves useful purposes. And while finding financial ratiosFinancial RatiosFinancial ratios are indications of a company's financial performance. There are several forms of financial ratios that indicate the company's results, financial risks, and operational efficiency, such as the liquidity ratio, asset turnover ratio, operating profitability ratios, business risk ratios, financial risk ratio, stability ratios, and so on., 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 also help investors and other stockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares. to understand how the company is performing and where the company is lacking.
EBIT vs. Net Income Video
This article has been a guide to the top differences between EBIT and Net Income. Here we also discuss the EBIT vs. Net Income key differences with infographics and comparison table. You may also have a look at the following articles –