EBIT vs Operating Income

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allalongthewatc

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Hello All,
I was going through my notes, and I realized that I have equated EBIT with Operating profit, which doesn’t include non-operating revenue items, because Schweser freely does so.
However, yesterday when I checked wiki, and it says that EBIT includes non-operating income items as well. Now, I am completely confused because even the curriculum ( 2014 edtion, Book 3, page 18) states that “operating profit is thus referred to as EBIT.” (They have used an income statement for this, and they haven’t included any non-operating revenue items for calculating operating income.) Surprisingly on page 356, Book 3, curriculum states that some analysts use EBIT as a shortcut representation for Operating Income…..EBIT includes non-operating items such as XYZ. Now, a million-dollar question is….what is correct? I am really lost.
I would really appreciate any advice or help in this matter.
Best regards
 
Consider a company that has a gain on the sale of investments in its other income/expense section of the income statement. This gain will be included in the EBIT calculation since EBIT is basically pre-tax income plus interest. Operating income will not include this gain since it is basically gross profit minus operating expenses.
 
chad.sandstedt wrote:
Consider a company that has a gain on the sale of investments in its other income/expense section of the income statement. This gain will be included in the EBIT calculation since EBIT is basically pre-tax income plus interest. Operating income will not include this gain since it is basically gross profit minus operating expenses.
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Thanks Chad for your response. I have two questions :
#1 Do you have any thoughts on the idea that we freely substitute Operating Income for EBIT? I would have solved hundreds of problems on this because Schweser does this. I see that you are a charterholder, so I thought of asking you. I would appreciate your response.
#2 Overall, I believe that EBIT = Operating Income + Non-operating income. Is this accurate considering what we have discussed above?
Thanks in advance.
 
#1 EBIT is considered an imperfect substitute to Operating Income, for a quick dirty calculation if I may.
#2 The formula would not be correct, you would have to determine items considered in EBIT calculation that may be non operating in nature and exclude them from the calculation to determine Operating Income
 
Hello
Please refer to CFA Vol 3 , Pg 155, it clearly says….Op. profit is sometimes referred to as EBIT.However operating profit and EBIT are not necessarily the same.….guess this should answer your question. Also it is later mentioned in the same text that you can have for ex. income from discontinuted operations which will give you a different EBIT and operating income.
 
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