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EBITDA vs Net Income | Are they Both Same? | Know the Top Differences! - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
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clicking the bell ican friends today we
have a topic which is EBITDA versus
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the net income well EBITDA one of the
very important driver which many company
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uses for valuation purpose what is a EBITDA see a EBITDA is basically earning
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before interest tax depreciation and
amortization and is a method that is it
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is often used to find the profitability
of the companies and the industry so it
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is very similar to the concept of the
net income with the few extra non
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operating additions so a EBITDA is an
indicator you know it is used for
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conducting comparative analysis for
various companies one of the major tools
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that is used for evaluating forms with
different sizes structures having taxes
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or depreciation so how does EBITDA has
been calculated
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EBITDA is equal to EBIT plus
depreciation plus amortization that's it
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it can be also be calculated as EBITDA
is equal to net profit plus taxes plus
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interest plus depreciation and plus
amortization if you have net profit then
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you can calculate by this method if we
have EBIT then you can calculate by
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this method EBIT is basically your
operating profit so in operating profit
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you will add by the non-cash expenditure
which is your depreciation and
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amortization to simply put depreciation
is the reduction in the value of the
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tangible assets over time and that
results in the wear and tear
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tangible assets and amortization on the
other hand is the financial technique
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that has been used to incremental
reduce the value of the intangible
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assets over time so net income is often
used to find out the total earnings and
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you can say the earnings and or the
you can say the profit of the company
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and it can be calculated by you know
subtracting the cost of doing the
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the business for that particular
company's revenue then we have the net
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income which is equal to your revenue
less the cost of doing the business
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right so cost of bring the business
includes all the taxes interest that the
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company should pay so the depreciation
of the assets and all the other expenses
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net income you know is the company's
income after taking into account all the
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deductions and you know sort of taxes
into account so EBITDA is somewhat
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similar to net income as both of their
values are subject to change because it
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was all the elements involved in the
calculation might be subjected to sort
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of a thing called manipulations might
become so let's understand this with the
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help of the income infographics the
difference well EBITDA was his net
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income let's understand a definition
EBITDA is basically an indicator used
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for calculating the company's profit
making ability while net income
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indicates indicates which is it is it is
an indicator which is used to calculate
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the company's total earnings so here the
profit to calculate the profit making
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ability and here the total earnings very
exactly it is used it is used to
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calculate the earning potential of the
company and it is over here it is used
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to calculate the earning per share that
is the EPS so earning potential and EPS
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is the difference
EPS is your how much the shareholders
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are earning per shareholding they have
the calculation part of EBITDA we
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have learned this very well EBIT plus
depreciation that's the first method and
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amortization or you can use the net
profit but for that you need to add back
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taxes interest DEP and amortization for
net income you need to deduct from the
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revenue all the cost of doing the
business so it includes operating non
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operating all the costs that are
incurred will be reduced and finally you
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will receive the net income now what
exactly is the result
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see calculation of the income generated
by the company without deducting any
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expenses like interest taxes DEP and
amortization but over here it's a total
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earning of the company after reducing
all the expenses here we add back things
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but here it's like the overall
performance that we are talking about
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here so that's the difference well this
was on the some of the differences that
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you were supposed to EBITDA versus
the net income will understand the key
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differences between EBITDA net see
one of the key difference between the
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income and the EBITDA is the usage of
the depreciation and amortization EBITDA
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is basically an indicator which
calculates the so called profit it
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calculates the profit right and EBITDA
is an indicator it calculates the profit
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to come
before paying of the expenses like Debt
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amortization on the other hand the net
income is the indicator which calculates
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the total earnings right of the company
you know after paying off its expenses
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taxes in the depreciation in amortization
second EBITDA is used as an indicator to
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find out the total earnings of the
potential of the company on the other
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hand the net income is used to find out
the earnings per share third EBITDA can
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be measured by adding back the
depreciation amortization if it is the
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case of EBIT then you know or you can I
if it is the case of net income they
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need to add back interest tax their
amortization to the profit but in case
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of the net income simply is calculated
by deducting revenue with all the cost
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that you have now with EBITDA is used to
find out the earning potential
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of the company so that's why when
investors look at the new company they
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calculator EBITDA is also pretty
easy to use and since there's no
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depreciation and amortization involved
on the other hand you know net income is
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used or earning per share if the company
has issued any shares just by dividing
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the net income of the number of
outstanding shares we can get the EPS
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let me finally recapture it everything
we when we look at the EBITDA versus the
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net income
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they are both the indicators that can be
adjusted by the companies but still the
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investors looks into the net income
versus the EBITDA of this indicators for
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making the trading decision - so that
you know they can get an idea about the
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big picture of the company now since
there are the the these are too
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calculated by using the so called income
statement the investor should use so
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called ratios as well as to cross-check
how the company is doing so one or two
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indicator can provide enough information
but to take the decision to invest in
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the company based on this on that as
imprudent so that's why investors should
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use ratios like ROIC return on you
know ROE that's a return on equity you
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have net profit margins then we have the
gross profit margins and so on and so
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forth so along with that the net income
versus EBITDA also should look at the
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other financial statements like you know
the balance sheets the CFS and so on and
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so forth so that's it for this
particular topic if you have learned and
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