EBIT vs EBITDA: the difference in plain English and which one a small-shop owner should track.
EBIT is operating profit before interest and tax. EBITDA is the same number with depreciation and amortisation added back — so it always looks bigger. For most small shops, EBIT is the honest number; EBITDA is what gets quoted when someone wants the figure to look healthier than it is.
EBIT stands for Earnings Before Interest and Tax. EBITDA stands for the same thing plus Depreciation and Amortisation added back. EBITDA is always equal to or larger than EBIT — and the gap is exactly the amount of depreciation and amortisation on your P&L.
What it means
EBIT is operating profit. It is the money your shop earned today from trading, before the bank takes interest on any loan and before the corporate tax office takes its slice. The EBIT explainer walks through the full formula nouz uses every evening to compute it.
EBITDA goes one step further: it strips out non-cash costs too. Specifically, it adds back depreciation (the gradual write-down of equipment like your coffee machine or POS terminal) and amortisation (the same idea applied to intangibles like software licences). Both are real costs on a formal P&L — your equipment really does wear out — but neither leaves your bank account in the month it appears. EBITDA is the number you get when you pretend those two lines do not exist.
You will see EBITDA quoted most often by people selling something: a business broker valuing a café for sale, a SaaS founder pitching investors, a franchise selling a territory. The reason is mechanical: EBITDA is always bigger, so it always looks better. For an owner-operator deciding whether today paid for itself, that flattering effect is a bug, not a feature.
How to calculate each
EBIT = Net revenue − COGS − Variable costs − Fixed-cost slice
EBITDA = EBIT + Depreciation + AmortisationIn nouz, EBIT comes from the daily close-out: gross revenue minus VAT and card fees gives net revenue; then minus COGS (snapshotted at the moment of sale), minus the day's variable costs, minus the daily slice of your monthly fixed costs (monthly fixed ÷ 30.4375). Whatever is left is EBIT. To get EBITDA you would then add back any depreciation and amortisation that sat inside your fixed-cost setup.
Worked example
A small café Tuesday in Vienna. The owner closes out at 19:30 and EBIT lands at €297. The fixed costs include €180/month of depreciation on the espresso machine (a €6,500 machine written down over three years). Daily depreciation slice: €180 ÷ 30.4375 = €5.91.
| Line | Amount |
|---|---|
| EBIT (operating profit on Tuesday) | €297.12 |
| + Depreciation slice (espresso machine) | +€5.91 |
| + Amortisation (none for this café) | +€0.00 |
| EBITDA | €303.03 |
The gap on a single day is small — €5.91 — because the café's capital base is modest. For a restaurant with €120,000 of kitchen build-out depreciated over five years, the daily gap would be around €66. For a salon with €40,000 of fit-out, around €22. The more capital sunk into equipment and fit-out, the larger the gap between EBIT and EBITDA, and the more flattering EBITDA looks.
Which one should you track?
For an owner-operator running one or two shops: EBIT, every day. Three reasons.
- Your equipment really does wear out. Depreciation may be non-cash this month, but the espresso machine, the POS terminal and the fit-out will all need replacing. EBIT respects that. EBITDA pretends it away.
- EBITDA is for capital-intensive businesses and acquisition talks. Telecoms, factories, hotels, businesses being sold or bought. For a café or salon with a small fixed-asset base, EBIT and EBITDA are usually within a few percent of each other anyway — so the more honest number costs you nothing.
- EBIT is what banks ask for. If you ever apply for working capital, the loan officer wants monthly EBIT for the last 12 months. EBITDA is rarely the first ask for a small-shop loan file.
Rule of thumb: if someone quotes you an EBITDA margin without also quoting EBIT, ask for both. The size of the gap tells you how much of the "profit" is the equipment wearing out invisibly.
Why it matters
The most common way small-shop owners get burned by EBITDA is when buying or selling a business. A broker lists a café "doing €60,000 EBITDA a year" — the buyer assumes that is the cash the business throws off. In reality, €18,000 of that EBITDA is depreciation on a fit-out that will need redoing in two years. Real cash to the new owner: €42,000. The gap is the price of confusing the two numbers.
Related concepts
- EBIT explained in plain English — the full formula and worked examples for café, retail, salon and e-commerce.
- Depreciation for non-accountants — what it is, why it exists, and how to set it up without a CFO.
- How to read a P&L statement — where EBIT and EBITDA sit on the page.
- Cash flow vs profit — why a profitable shop can still run out of cash.
FAQ
What is the difference between EBIT and EBITDA in one sentence?
EBIT is operating profit before interest and tax. EBITDA is the same number with depreciation and amortisation added back, so EBITDA is always equal to or larger than EBIT — the gap is exactly the amount of depreciation and amortisation on the P&L.
How do I calculate EBITDA from EBIT?
EBITDA = EBIT + Depreciation + Amortisation. Look at your fixed-cost setup for any depreciation lines (equipment write-downs, fit-out write-downs) and any amortisation lines (software licences, goodwill). Add the monthly total of both to EBIT and you have EBITDA. For most small shops the figure is within a few percent of EBIT because the capital base is small.
Is a higher EBITDA always better?
EBITDA looks better than EBIT by design, because it pretends two real costs (equipment wearing out and intangibles amortising) do not exist. For an owner-operator running a café, salon or boutique, EBIT is the more honest daily number because your equipment really does need replacing eventually. Use EBITDA only when comparing against capital-intensive businesses or in acquisition discussions.
When should I use EBITDA instead of EBIT?
Three situations: (1) you are buying or selling a business and want to compare against industry multiples (which are usually quoted in EBITDA); (2) you are comparing against a capital-intensive competitor whose depreciation distorts the comparison; (3) you are pitching investors and want to highlight cash-generative capacity separate from how the assets are being written down. For the daily question "did today pay for itself," EBIT is the right answer every time.