Difference Between Ebit and Operating profit

ebit vs operating profit

In business and financial accounting, operating income and Earnings Before Interest and Taxes or EBIT deals with the revenues of a company or a firm. These two accounting terms determines the progress of a company or firm. Most of the times people get confused with EBIT and operating profit and consider them to be the same.

The Earnings Before Interest and Taxes is considered to be the measure of the profitability of a company or firm. If the EBIT value is large, then the company or firm is considered to be more profitable. EBIT is equal to Operating Revenue minus Operating Expenses (OPEX) plus Non-operating Income.

Operating profit means the returns, which remain with the company or firm after the subtraction of the operating costs from the gross profit. When this method of calculation is used, one can determine the amount that can be used for any ongoing function like investments or paying taxes.

The company owners as well as the investors make use of EBIT and Operating profit for enhancing their profit and investment. As the tax and financing structures of a company or firm differs from another, the EBIT helps in determining the actual profitability. Investors use the EBIT technique to trace the most profitable firm or company in relation to efficiency of its operation.

The EBIT method also will help an investor to see if the company will bring out profits even after all the expenses are met. It is great tool by which an investor can choose whether to invest or not in a particular company.

Like EBIT, operating profits is also a valuable technique for the businessmen. The operating profit tool helps a businessman to make use of all available resources. If there is any decrease in the operating profit, then it is likely that some changes are going on in the company, may be in the operations or the market. When changes are noticed in operating profit, it is a sign that changes have to be brought into the company if one has to get profit.

Summary
1.The Earnings Before Interest and Taxes is considered to be the measure of the profitability of a company or firm.
2.Operating profit means the returns, which remain with the company or firm after the subtraction of the operating costs from the gross profit.
3.EBIT technique to trace the most profitable firm or company in relation to efficiency of its operation.
4.The operating profit tool helps a businessman to make use of all available resources

Sharing is caring!