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EBITDA, operating profit or net profit? What do financial indicators tell you about a company?
A company's financial performance is monitored using several financial indicators. EBITDA, operating profit and net profit all provide information about a company's financial situation, but each measures slightly different things.
What does EBITDA tell you?
EBITDA shows how much remains from a company's core business operations before depreciation and amortisation, financial items and taxes. It helps assess the profitability of the company's operations.
What does operating profit tell you?
Operating profit also takes depreciation and amortisation into account. It shows how much profit a company generates from its core business operations before financial items and taxes.
What does net profit tell you?
Net profit shows how much profit or loss remains after financial items and taxes have also been taken into account.
What is the difference between these financial indicators?
In simple terms:
EBITDA → Operating performance before depreciation and amortisation
Operating profit → Operating performance after depreciation and amortisation
Net profit → Final profit or loss after financial items and taxes
Operating profit → Operating performance after depreciation and amortisation
Net profit → Final profit or loss after financial items and taxes
Why are these financial indicators important?
These indicators help business owners monitor profitability and make informed financial decisions. They may also be reviewed as part of an overall assessment of a company when applying for financing.