Is EBITDA the Same as Operating Profit? Key Differences Explained

When analysing a company’s financial performance, two terms often appear: EBITDA and operating profit. Many beginners ask the same question — is EBITDA and operating profit same? The short answer is no. While both measure business performance, they serve different purposes and are calculated differently. Understanding this difference helps in making better financial judgments.

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What Is Operating Profit?

Operating profit, also known as operating income, shows how much profit a business earns from its core activities. It includes everyday costs like salaries, rent, and production expenses. It also accounts for depreciation and amortisation. However, it excludes interest and taxes.

This figure reflects how efficiently a company runs its main operations. Investors often rely on operating profit to judge management performance and cost control.

What Is EBITDA?

EBITDA stands for earnings before interest, taxes, depreciation, and amortisation. It removes non-cash expenses and financing costs from the calculation. As a result, EBITDA focuses more on earning potential and cash flow from operations.

This metric is widely used to compare companies with different asset sizes or debt levels. However, it is not part of standard accounting rules.

EBITDA vs Operating Profit

Why the Confusion Exists

The confusion arises because both figures start with operating performance. EBITDA is usually higher because it adds back depreciation and amortisation. This adjustment can make businesses appear more profitable than they actually are.

Which Metric Should You Use?

There is no single correct choice. Operating profit gives a realistic view of business performance. EBITDA offers a broader look at earning capacity. Many analysts use both together for balanced analysis.

Conclusion

So, is EBITDA and operating profit same? Clearly, they are not. Each metric tells a different story. Understanding both helps investors, students, and professionals make informed decisions without relying on just one number.