EBITDA vs operating income: the difference, with one P&L worked both ways

EBITDA vs operating income comes down to one line: operating income is after depreciation and amortization, and EBITDA is before them. On the P&L below, operating income is $6,000,000 and depreciation and amortization (D&A) are $3,000,000, so EBITDA is $9,000,000 from the top down. Built from net income instead, EBITDA is $9,400,000, because that route also picks up a $400,000 gain below the operating line.

The difference in one line

Operating income = Revenue − Cost of goods sold − Operating expenses (including D&A)

EBITDA (top-down) = Operating income + Depreciation + Amortization

EBITDA (bottom-up) = Net income + Income tax + Interest expense + Depreciation + Amortization

EBIT = Net income + Income tax + Interest expense

Operating income sits on the face of most US income statements. EBITDA does not: it is a subtotal a company or a lender builds from the statement. The short definition is in the glossary under EBITDA.

The rows you need

One P&L worked both ways

One year, USD thousands.

Top-down. Operating income plus D&A: 6,000 + 3,000 = 9,000, an 18.0% EBITDA margin on revenue of 50,000. In Excel, with D&A in B6 and operating income in B7:

=B7+B6

Bottom-up. Net income plus tax, interest and D&A: 3,900 + 1,300 + 1,200 + 3,000 = 9,400, an 18.8% margin.

Operating margin is 6,000 / 50,000 = 12.0%. The gap from operating margin to the top-down EBITDA margin is D&A over revenue, 6.0 points, which is why the EBITDA margin of a capital-heavy business sits far above its operating margin.

Why the two EBITDA figures differ

The two routes are 400 apart, and the reconciliation shows it is not an error. Walk from net income down the bottom-up route and stop at each subtotal:

EBITDA bottom-up is 6,400 + 3,000 = 9,400; top-down is 9,000. The difference, 9,400 − 9,000 = 400, is exactly the non-operating gain. A bridge like this one belongs beside any EBITDA figure that is quoted, so the reader can see which items sit inside it.

EBIT vs operating income

EBIT here is 6,400, again 400 above operating income. The two match only when there is nothing between operating income and income before taxes except interest. Investment income, FX gains and losses, and gains on selling assets break the match.

US GAAP does not require an operating income subtotal. The SEC's Regulation S-X, Rule 5-03 lists the captions, and companies draw the operating line in different places, so one company's operating income includes the gain on a vehicle sale and another's does not. A loan covenant defines its own EBITDA, a deck often uses a different one, and both should say which.

Which to use when

• Operating income for comparability with the audited statements and across your own periods. It is the figure the monthly commercial pack should lead with.
• EBITDA for leverage covenants (debt / EBITDA) and for comparing peers that carry very different asset bases, where D&A reflects past spending more than this year's performance.
• Either way, list the adjustments. EBITDA with a reconciliation is information; EBITDA without one is a claim.

EBITDA as a non-GAAP measure

For a US registrant EBITDA is a non-GAAP financial measure. Regulation G and Item 10(e) of Regulation S-K require a reconciliation to the most directly comparable GAAP measure, and in SEC filings that measure must be shown with equal or greater prominence.

The SEC staff's non-GAAP compliance and disclosure interpretations settle which route counts. Question 103.01 says "earnings" in EBITDA "means net income as presented in the statement of operations under GAAP", and that measures calculated differently should be titled something else, "such as 'Adjusted EBITDA.'" Question 103.02 says EBITDA used as a performance measure should be reconciled to net income, and that operating income "would not be considered the most directly comparable GAAP financial measure." In a filing, then, this company's EBITDA is the bottom-up 9,400; the top-down 9,000, which removes the vehicle gain, needs a different label.

For IFRS reporters, IFRS 18 adds a defined operating profit subtotal and disclosure of management-defined performance measures for annual periods beginning on or after January 1, 2027.

Where it goes wrong

• Bottom-up EBITDA called operating income plus D&A. Non-operating gains and losses creep in, as the 400 did here.
• D&A buried in COGS or SG&A. The P&L line understates it; take D&A from the cash flow statement or the fixed-asset register.
• Adjusted EBITDA against plain EBITDA. A company's adjusted figure, with add-backs it does not list, compared with a peer's unadjusted one.
• Lease accounting. Under US GAAP (ASC 842) operating-lease cost stays in operating expenses, inside EBITDA; under IFRS 16 it becomes depreciation and interest, both added back, so an IFRS peer's EBITDA runs higher.
• EBITDA read as cash. It ignores capital expenditure, working capital and tax.

Getting both from the ledger

Covirage maps the ledger accounts once, then its tools compute operating income, EBITDA both ways and the reconciliation between them; the external AI model writes the commentary on the finished table and never does the arithmetic. See FP&A reporting for producing operating income and EBITDA with their reconciliation from your own ledger export. For the lines above and below, see gross profit vs net profit and net profit margin; for reading the whole statement, how to analyze a P&L.