Bill Hanna, CPAAccounting Leader Driving Financial Excellence

CFO explanation of EBIT vs. EBITDA.

22 Mar 2026 · 2 min

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1:52

In this concise instructional video, CPA Bill Hanna explains the two common profitability metrics EBIT (Earnings Before Interest and Taxes) and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). He walks through a sample income‑statement, showing how EBIT equals operating income ($280,000) by adding back interest ($30,000) and taxes ($50,000) to net income ($200,000). He then derives EBITDA by further adding depreciation ($50,000) and amortization ($20,000) to EBIT, arriving at $350,000. Hanna clarifies the conceptual purpose of each metric: EBIT reflects core profitability by excluding financing and tax effects, while EBITDA serves as a proxy for operating performance by also stripping out non‑cash depreciation and amortization, which are tied to past investment decisions rather than day‑to‑day operations. The video ends with a brief invitation to follow the channel for more finance insights.

Chapters

EBIT versus EBITDA. What are they and what is the difference? Well, EBIT is Earnings Before Interest and Taxes. We can also refer to EBIT as operating income. So as it shows here on the income statement, operating income is $280,000, and if you calculate EBIT, we get to the same number. EBIT is net income, which is here, $200,000, plus interest expense, which is right here, $30,000. We add that back. We add back taxes as well, $50,000, and we get to $280,000 EBIT. So EBIT is the same as operating income. EBITDA, on the other hand, is earnings before interest, taxes, depreciation, and amortization. The formula is net income plus interest, taxes, depreciation, amortization, or EBIT, which we'll take from here, $280,000 plus our depreciation, which is here, $50,000, and amortization, $20,000, we get to $350,000. That is EBITDA. What do they represent? Well, EBIT is about core profitability. Core because we're saying that interest and taxes aren't part of the core operation of the business, while EBITDA represents a proxy for the operating performance. We are removing depreciation and amortization because we're saying this is not part of the operation of the business month to month. These are simply decisions the company made to acquire manufacturing facilities, acquire other companies that brought in intangible assets that created amortization of those intangible assets. So we're saying EBITDA is a proxy for the operation of performance of the business. If you like to get more Finance Bites from me, go ahead and follow the channel.