EBIT and EBITDA

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EBIT and EBITDA are two profitability measures. EBIT (Earnings Before Interest and Taxes) shows operating profit after depreciation and amortisation. EBITDA adds those back (Earnings Before Interest, Taxes, Depreciation and Amortisation), reflecting cash operating performance. Hotels use both to compare performance and value the business independently of financing and accounting choices.

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EBIT and EBITDA as key figures

EBIT and EBITDA are two key figures that companies use to measure their profitability. EBIT stands for “earnings before interest and taxes” and is a measure of a company's operating profit. EBITDA stands for “earnings before interest, taxes, depreciation and amortization” and is a measure of a company's cash flow.

EBIT AND EBITDA Explanation and definition

Difference between EBIT and EBITDA

The difference between EBIT and EBITDA lies in the additional costs that are taken into account when calculating EBITDA.

Depreciation and amortization are amortization of tangible assets and intangible assets. These costs are not usually considered part of operating profit as they are not directly related to the operation of the company. EBITDA is therefore a better indicator of a company's cash flow than EBIT. As a result, it is often the preferred metric when it comes to valuing companies.

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Conclusion

EBIT/EBITDA are important financial figures that measure a company's profitability. However, there are also a few drawbacks that you should be aware of. On the one hand, distortions can occur if the company has high debts. On the other hand, Ebit/Ebitda is just one of many key figures that should be used when valuing a company.

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Frequently asked questions

What is the main difference between EBIT and EBITDA?

EBITDA adds depreciation and amortisation back to EBIT, stripping out accounting for past capital spend so it better reflects cash operating performance.

Which should a hotel use, EBIT or EBITDA?

Both. EBITDA helps compare operating performance and for valuation; EBIT better reflects true profit after the wear-and-tear of assets.

How do you calculate EBITDA?

Take operating profit (EBIT) and add back depreciation and amortisation - or start from net profit and add back interest, taxes, depreciation and amortisation.