Similarities and differences between operating profit and EBIT

Operating profit is calculated on the basis of operating income minus operating costs, business taxes and surcharges, selling expenses, administrative expenses, financial expenses, asset impairment losses, plus fair value change gains (less fair value change losses) and investment income.

EBIT refers to the profit of the enterprise before excluding financial expenses, if the enterprise has a large number of bank deposits, the financial expenses will be negative, it offsets the operating expenses, but it is not the operating income, so when calculating the actual operating profit of the enterprise, it should be excluded.

In layman's terms, it is a profit without deducting interest or income tax, that is, profit before income tax without considering interest, which can also be called profit before interest and tax. Earnings before interest and taxes, as the name suggests, refers to the profit before interest and income taxes are paid.

The difference is the issue of interest deduction and tax deduction.

Operating profit: If you look at the income statement, there is an item called operating profit, which is to deduct non-recurring gains and losses (non-operating income and expenditure). EBIT is net profit plus income tax, i.e. total profit, including non-recurring gains and losses.

Operating profit is the expenses generated by the daily business activities of the enterprise, and the taxable income of the enterprise income tax is the total profit of the enterprise in the current year, the difference is that the total profit = operating profit + non-operating income + investment income - non-operating expenses, and the after-tax profit is called the net profit of the enterprise in the current year, and there is an inclusion relationship between these two profits.

EBIT = net profit + income tax + financial expenses, financial expenses are equivalent to interest, but in practice, financial expenses are not only interest. Therefore, EBIT = net profit + income tax + financial expenses is inaccurate, and it is not very accurate to say that operating profit is EBIT.

The difference between the two is that the "interest" is considered, and the pre-tax operating profit considers the interest expense in the broad sense, while the EBIT takes into account the interest expense in the narrow sense, and there is a difference between the two. From the perspective of the meaning of the word, earnings before interest and taxes (EBIT) is a concept derived from the bottom up of the income statement, net profit plus tax is the profit before tax, and profit before tax plus interest is the profit before interest and taxes;

Operating income is a concept that is pushed down from the top of the income statement, operating income minus operating costs, and then subtracting period expenses or operating expenses is operating income.

Under operating income and EBIT, there is also net other income and expenses, which are called non-core income, which includes other operating income expenses, one-time income expenses, one-time legal fees, restructuring costs, and equity awards.

How EBIT is calculated:

1. EBIT = net profit of the enterprise + interest expense paid by the enterprise + income tax paid by the enterprise;

2. Or, EBIT = marginal contribution - fixed operating costs = total sales revenue - total variable costs - fixed operating costs;

3. EBIT is mainly used or calculated on a reputational basis;

4. Regardless of the operating profit of the enterprise, the interest on debt and the dividends on preferred shares are fixed. When EBIT increases, the fixed finance costs per dollar of surplus are relatively reduced, which can lead to more earnings for common shareholders.

The difference between gross profit and EBIT: Gross profit does not include interest expenses paid by the company, while EBIT includes interest expenses paid by the company. EBIT can also be referred to as EBIT, which is commonly referred to as profit without deducting interest or income tax, that is, profit before income tax without considering interest.

Total profit refers to the final financial results achieved by an enterprise through production and business activities in a certain period of time.

It's not quite the same. 1. EBIT is a profit without deducting interest or income tax, that is, the profit before paying income tax without considering interest, which can also be called profit before interest and tax. Earnings before interest and taxes, as the name suggests, refers to the profit before interest and income tax are paid.

2. The total profit is the surplus of a company after deducting discounts, cost consumption and business tax in its operating income, which is what people usually call profit, and the relationship between it and operating income is: total profit = operating profit + non-operating income - non-operating expenses.

3. The relationship between total profit and EBIT is that the former includes the interest expense paid by the enterprise, and the latter includes the interest expense paid by the enterprise.