When analyzing company results in India, you’ll often hear terms like EBITDA, Operating Profit, and Net Profit. While all three relate to profitability, each tells a different story about how a company is performing financially.
Let’s simplify these concepts using real-life examples from the Indian stock market.
What is EBITDA?
EBITDA stands for: Earnings Before Interest, Taxes, Depreciation, and Amortization.
It reflects the core operating performance of a company before factoring in financing costs, government taxes, and accounting adjustments like depreciation.
Formula:
EBITDA = Revenue – Operating Expenses (excluding Depreciation and Amortization)
Example:
For a manufacturing company like Tata Motors, EBITDA helps investors focus on operating efficiency without worrying about debt costs or tax impacts.
What is Operating Profit (EBIT)?
Operating Profit, also called EBIT (Earnings Before Interest and Taxes), is calculated after deducting depreciation and amortization from EBITDA.
It reflects how much profit the business generates from its core operations before interest and taxes.
Formula:
Operating Profit = EBITDA – Depreciation – Amortization
Example:
If Maruti Suzuki reports EBITDA of Rs 5,000 crore and has depreciation of Rs 500 crore,
then Operating Profit (EBIT) = Rs 4,500 crore.
What is Net Profit?
Net Profit (also called Net Income or Profit After Tax) is the final profit figure after subtracting interest expenses, taxes, and other non-operating costs from Operating Profit.
Formula:
Net Profit = Operating Profit – Interest – Taxes – Other expenses + Non-operating income
Example:
If Infosys reports an Operating Profit of Rs 4,500 crore, pays Rs 200 crore interest, and Rs 1,000 crore in taxes,
then Net Profit = Rs 4,500 crore – Rs 200 crore – Rs 1,000 crore = Rs 3,300 crore
Quick comparison:
| Metric | Includes | Excludes |
|---|---|---|
| EBITDA | Operating income (excluding depreciation) | Interest, taxes, depreciation, amortization |
| Operating Profit | Operating income (after depreciation) | Interest, taxes |
| Net Profit | Final profit after all costs | None |
Why understanding the difference matters:
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EBITDA shows core operational performance.
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Operating Profit reflects how efficiently the business handles operating costs including depreciation.
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Net Profit shows how much money is actually left for shareholders after all expenses.
For example, heavily indebted companies like Vodafone Idea may have a good EBITDA but poor Net Profit due to high interest costs.
Conclusion:
When reviewing quarterly results or choosing stocks to invest in, it’s crucial to check all three: EBITDA, Operating Profit, and Net Profit.
Each tells a different part of the company’s profitability story.
