Key Insight
EBIT is EBITDA minus D&A — it reflects operating profitability after accounting for asset wear. For capital-intensive businesses, EBIT is closer to true economic earnings than EBITDA alone.
EBIT vs. EBITDA
EBITDA adds back depreciation and amortization, treating them as non-cash non-issues.
EBIT keeps depreciation and amortization in the earnings figure — recognizing that these non-cash charges represent real economic consumption of assets.
For capital-light businesses (services, software), EBIT and EBITDA are nearly identical — depreciation is minimal. For capital-intensive businesses (manufacturing, trucking, equipment-heavy services), the gap is material and EBIT provides a more conservative and accurate picture.
When Lenders Use EBIT
Some lenders, particularly conventional (non-SBA) commercial lenders, underwrite to EBIT rather than EBITDA — arguing that depreciation represents real replacement cost and shouldn't be ignored in coverage analysis. This produces a lower NOI figure and a more conservative DSCR, requiring businesses to demonstrate higher earnings coverage.
EBIT Margin
EBIT expressed as a percentage of revenue is the EBIT margin — a measure of operating efficiency. A business with $2M revenue and $400K EBIT has a 20% EBIT margin. This allows comparison across businesses of different sizes in the same industry.
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