EBIT vs EBITDA: what’s the difference?
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 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.
How big the gap is by sector
The distance between EBIT and EBITDA is driven entirely by how much capital is sunk into equipment and fit-out. The more you spent on kit that wears out, the more depreciation sits on the P&L, and the more flattering EBITDA looks next to EBIT. These are rules of thumb for the typical capital base by sector, not fixed figures — your own equipment and fit-out decide the real gap.
| Sector | Capital base | Typical EBIT-to-EBITDA gap | Reads as |
|---|---|---|---|
| Salon (services) | Low | Small | Chairs and mirrors are cheap; EBIT and EBITDA sit close together. |
| Café / coffee shop | Low - moderate | Small - moderate | One espresso machine and a fit-out; the gap is real but modest. |
| Boutique retail | Low | Small | Fixtures and a POS; little to depreciate, so the two numbers nearly match. |
| Restaurant | High | Large | Kitchen build-out and equipment depreciate heavily; EBITDA can flatter meaningfully. |
| Small e-commerce | Low | Small | Little owned equipment; most cost is variable, so the gap is thin. |
The pattern to remember: a salon or a boutique can quote EBITDA and EBIT almost interchangeably, so the honest number costs nothing. A restaurant with a six-figure kitchen cannot — its EBITDA can overstate the real cash the business throws off by a wide margin, which is exactly why restaurant sales are so often pitched on EBITDA.
Common mistakes
- Treating EBITDA as the cash the business generates. It ignores that your equipment really does wear out and will need replacing, so it overstates sustainable cash — most badly in capital-heavy businesses like restaurants.
- Comparing your EBIT to someone else's EBITDA. The second number is always bigger by design, so the comparison makes your shop look worse than it is. Line up EBIT against EBIT and EBITDA against EBITDA, or the comparison is meaningless.
- Accepting an EBITDA multiple when buying a business without checking the depreciation behind it. A café "doing €60,000 EBITDA" may throw off far less real cash once a fit-out that needs redoing in two years is accounted for. Always ask for the EBIT figure alongside.
- Adding depreciation back but forgetting amortisation, or vice versa. EBITDA adds back both the write-down of physical equipment and of intangibles like software licences. Missing one gives a number that is neither EBIT nor EBITDA.
- Using EBITDA for the daily question "did today pay for itself." For an owner-operator that is the wrong tool — it hides a genuine cost. EBIT is the honest daily answer; save EBITDA for acquisition talks and capital-intensive comparisons.
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.
How it shows up in your daily P&L
nouz computes EBIT — the honest number — at every close, not EBITDA. The day runs gross revenue minus VAT and card fees to net revenue, then minus the COGS snapshot, minus variable costs, minus the daily slice of your monthly fixed costs. If you set up depreciation as one of those fixed costs — an espresso machine written down over three years, a fit-out over five — then its daily slice is already inside the EBIT nouz shows you. That is the point: the equipment wearing out is treated as the real cost it is, spread evenly across the days it serves.
To read EBITDA from a nouz day, you would take the EBIT and add back that depreciation slice — for the espresso-machine example, about €5.91 a day. It is a deliberate one-step-up calculation rather than the headline, because for an owner-operator the daily question is "did today pay for itself including the wear on my kit," and only EBIT answers that honestly. EBITDA stays available for the moment you need it — a sale, a loan comparison against a capital-heavy peer — without quietly flattering every ordinary Tuesday.
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.
Common questions
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.
Does a café or salon really need to know EBITDA?
Day to day, no. A salon's capital base is so small that EBIT and EBITDA sit within a percent or two of each other, so the honest EBIT costs you nothing in optimism. The one time it matters is if you go to sell — brokers quote in EBITDA — and even then you should quote EBIT alongside so a buyer sees how much of the "profit" is equipment wearing out.
Is EBITDA the same as cash flow?
No, and treating it as such is the classic trap. EBITDA adds back non-cash costs, which nudges it toward a cash figure, but it still ignores actual capital spending, changes in stock and receivables, loan principal repayments and tax paid. A business can show healthy EBITDA and still run short of cash. For the real thing, see cash flow vs profit.
Why is EBITDA always bigger than EBIT?
Because EBITDA starts from EBIT and adds two costs back — depreciation and amortisation — without ever subtracting anything. Those add-backs are always zero or positive, so EBITDA can only be equal to or larger than EBIT. It is equal only when a business has no depreciation and no amortisation at all, which is rare for any shop with owned equipment.