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6.21What is operating profit?

1What is it?

Operating profit (EBIT) is profit from the core business: revenue minus operating costs, before interest and tax. EBITDA also adds back depreciation and amortisation.

2Why does it exist?

It shows how the business itself performs, separately from how it’s financed (interest) and taxed.

3Calculation
EBIT = Revenue − Operating expenses (incl. depreciation)
  1. Revenue ₹10,000 cr − expenses ₹7,500 cr = ₹2,500 cr
EBIT = ₹2,500 crore.
4Quick revision
  • EBIT = core business profit.
  • EBITDA adds back depreciation.
  • Used for operating margin and ROCE.
5Knowledge check
Q1. What does EBIT stand for?Show answer

Earnings Before Interest and Tax.

Q2. Why look at operating profit?Show answer

It shows core business performance, independent of financing.

Q3. Is EBITDA higher or lower than EBIT?Show answer

Higher (depreciation is added back).

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