Profit and loss index for corporate management analysis

Selim Tax

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EBIT (earnings before interest and tax) 

It refers to the amount which subtracts expenses from profits generated from sales activities and does not include interest and tax. It means profits and losses which do not include abnormal entries. 

On a income statement, it is EBIT which computated by subtracting interest costs and corporate tax amounts from profits and losses before subtracting corporate taxes.  

(1) - (2) -(3) = (EBIT)

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EBITDA 

(Earnings Before Interest, Taxes, Depreciation, Amortization)

EBITDA is a corporate's actual profits that comes from sales activities. It is net profits before subtracting interest, tax, and depreciation and amortization.

Profits of a corporation can be skewed by financial structures and computation method of depreciation and amortization. EBITDA is valuable as an index which helps to figure out a company's actual profit creation abilities because it excludes the factors that can skew profits.

From an income statement, it referts to the EBITDA which is computated by subtracting interest expenses (2), corporate tax expenses (3), and depreciation and amortization expenses (4) from profit and losses before corporatet tax (1).

(1) - (2) - (3) - (4) = (EBITDA)