What is EBITDA? How is it different from Income or Revenue and net profit?

Revenue: Revenue refers to the total amount of money generated by a company from its core business operations. It represents the income received by the company from selling goods or services to customers. Revenue is typically reported on the top line of the company's income statement and is an important indicator of a company's sales performance.

EBITDA: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company's profitability and operating performance. EBITDA provides a view of a company's earnings from its core operations without considering the impact of interest expenses, taxes, and non-cash items like depreciation and amortization. EBITDA is often used to assess the operational efficiency and profitability of a company.

Net Profit: Net profit, also known as net income or net earnings, represents the final amount of profit that remains after deducting all expenses from the company's total revenue. It takes into account various costs such as operating expenses, interest expenses, taxes, and non-operating items. Net profit is a key financial metric as it reflects the overall profitability of the company and its ability to generate earnings for its shareholders.

It's important to note that revenue, EBITDA, and net profit are interrelated but represent different aspects of a company's financial performance. Revenue indicates the total sales, EBITDA measures operating profitability, and net profit reflects the final profit after considering all expenses. These metrics are used by investors, analysts, and stakeholders to evaluate the financial health and performance of a company.

Here's an example in INR (Indian Rupees) for revenue, EBITDA, and net profit of a company:

1.     Revenue: Let's say a software company generates total sales of INR 50,00,000 from selling its software products and services in a given financial year. In this case, the revenue of the company is INR 50,00,000.

2.     EBITDA: Suppose the company incurs operating expenses of INR 30,00,000, excluding interest, taxes, depreciation, and amortization. The company's EBITDA would be INR 20,00,000 (INR 50,00,000 - INR 30,00,000).

3.     Net Profit: Consider that the company also incurs interest expenses of INR 5,00,000 and pays taxes of INR 8,00,000. After deducting these expenses from the revenue, the company's net profit would be INR 7,00,000 (INR 50,00,000 - INR 30,00,000 - INR 5,00,000 - INR 8,00,000).