WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Blog
  • Free Video Tutorials
  • Courses
  • All In One Bundle
  • Login
Home » Accounting Tutorials » Income Statement Tutorials » EBITDA vs Net Income

EBITDA vs Net Income

By Madhuri ThakurMadhuri Thakur | Reviewed By Dheeraj VaidyaDheeraj Vaidya, CFA, FRM

The key difference between EBITDA and Net Income is that EBITDA refers to earnings of the business which is earned during the period without considering the interest expense, tax expense, depreciation expense and amortization expenses, whereas, Net Income refers to earnings of the business which is earned during the period after considering all the expenses incurred by the company.

Difference Between EBITDA and Net Income

Earnings before interest, taxes, depreciation, & amortization (EBITDA) is a method that is often used to find the profitability of companies and industries. It is very similar to net income with a few extra non-operating income additions. EBITDA is an indicator used for conducting comparative analysis for various companies.

EBITDA vs Net Income

It is one of the major financial tools used for evaluating firms with different sizes, structures, taxes, and depreciation.

  • EBITDA = EBIT + Depreciation + Amortization or
  • EBITDA = Net Profit + Taxes + Interest + Depreciation + Amortization

To simply put, depreciation is the reduction in the value of tangible assets over time that results in wear and tear of the tangible assets.

Amortization is the financial technique used to incrementally reduce the value of intangible assets of a company.

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 for the company’s revenue.

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course
  • Net income = Revenue – Cost of doing business

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.

EBITDA is somewhat similar to net income as both of their values are subject to change because some of the elements involved in their calculation might be subjected to manipulation by the companies.

EBITDA vs Net Income Infographics

EBITDA-vs-Net-Income

Key Differences Between EBITDA and Net Income

Here are the key differences between them.

  • One of the key differences is the usage of depreciation and amortization. EBITDA is an indicator that calculates the profit of the company before paying the expenses, taxes, depreciation, and amortization. On the other hand, net income is an indicator that calculates the total earnings of the company after paying the expenses, taxes, depreciation, and amortization.
  • EBITDA is used as an indicator to find out the total earning the potential of a company. On the other hand, net income is used to find out the earnings per share of the company.
  • EBITDA can be measured by adding depreciation and amortization to EBIT or by adding interests, taxes, depreciation and amortization to net profit. Net income, on the other hand, is calculated by subtracting revenue from the overall cost of doing the business.
  • With EBITDA is basically used for start-up companies to see how they are performing. Net income, on the other hand, is used pervasively in all circumstances to understand the financial health of a company.
  • EBITDA is used to find out the earning potential of the company. That’s why when investors look at a new company, they calculate EBITDA. EBITDA is also pretty easy to use since there’s no depreciation and amortization involved. On the other hand, net income is used to find out the earnings per share if the company has issued any shares. Just by dividing the net income by the number of outstanding shares, we can get the EPS.

Comparative Table

Basis for Comparison

EBITDA

Net income

Definition

EBITDA is an indicator used for calculating a company’s profit-making ability.

Net income is an indicator which is used to calculate company’s total earnings.

Used

To calculate the earning potential of the company.

To calculate earnings per share (EPS).

Calculation

EBITDA = EBIT + Depreciation + Amortization

Or

EBITDA = Net Profit + Taxes + Interest + Depreciation + Amortization

Net income = Revenue – Cost of doing business

Result

Calculation of income generated by the company without deducting any expenses like interest, tax, depreciation, and amortization.

Calculation of total earnings of the company after reducing all the expenses.

Conclusion

When we look at these terms, they are both indicators that can be adjusted by the companies. But still, the investors look into both of these indicators for making trading decisions so that they can get an idea about the big picture of the company.

Since these two are calculated by using the income statement, the investors should use other ratios as well to cross-check how a company is doing. One or two indicators can provide enough information, but to take the decision to invest in a company based on that isn’t prudent. That’s why investors should use ROIC, ROE, Net Profit Margin, Gross Profit Margin, etc.

Along with that they should also look at other financial statements like the balance sheet and the cash flow statement.

EBITDA vs Net Income Video

Recommended Articles

This has been a guide to EBITDA vs Net Income. Here we discuss the top differences between net income and EBITDA along with infographics and comparison table. You may also have a look at the following articles –

  • Differences Between Operating Income vs Net Income
  • EBITDA vs Operating Income | Compare
  • EBIT vs Net Income Differences
  • NOPAT vs Net Income

 

3 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More