EBIT vs. EBITDA: How Swiss companies correctly evaluate their figures

What is EBIT?

EBIT stands for “Earnings Before Interest and Taxes”. The metric shows how profitable a company is in its operating business, regardless of its financing structure or tax burden. It therefore reflects what is known as operating profit.

Especially in international comparative analyses, EBIT – often presented on an EBIT basis – plays a key role, as interest expenses and tax burdens can vary greatly from country to country. By focusing on the core business, the earning power becomes visible in isolation – an important factor for investors, lenders or when preparing company sales.

In Switzerland, EBIT is widely used in internal management and in evaluations based on business management criteria – both for capital market-oriented companies and in the SME segment.

What is EBITDA?

EBITDA means “Earnings Before Interest, Taxes, Depreciation and Amortization”.

In contrast to EBIT, EBITDA additionally excludes depreciation. While depreciation affects the accounting result, it does not lead to an immediate cash outflow. EBITDA therefore more closely approximates operating cash flow and presents the company’s economic performance in an even more unadulterated way.

In practice, EBITDA is particularly used to compare the operating profitability of companies – for example in business valuations, creditworthiness analyses or the assessment of M&A transactions. Banks and investors also frequently rely on EBITDA to evaluate a company “decoupled” from accounting issues.

How do EBIT and EBITDA differ?

The key difference between EBIT and EBITDA lies in the treatment of depreciation. While EBIT already represents operating profit before interest and taxes, EBITDA also eliminates depreciation on property, plant and equipment and intangible assets.

This distinction is particularly relevant when companies are highly investment-driven or record high depreciation, for example in capital-intensive industries such as manufacturing, telecommunications or infrastructure. In such cases, EBITDA provides an adjusted picture of operating earning power, as it only reflects the actual operating cash flow.

However, EBITDA is less conservative than EBIT, as it deliberately excludes cost factors that do play a role in the medium to long term – especially when assessing the substance and sustainability of the business model. Anyone who wants to gauge a company’s real economic performance should therefore look at both metrics and interpret them in context.

For financial managers in Swiss companies, the following applies: EBIT is ideally suited for internal management and as a basis for year-on-year comparisons, while EBITDA plays a complementary role, particularly in financing and investor communication – for example to present operating profit that is close to cash flow.

How are EBIT and EBITDA calculated?

EBIT and EBITDA can be calculated in different ways – depending on the starting point of the analysis and the accounting method. In practice, three approaches are particularly common: the total cost method, the cost of sales method and derivation from net income.

Total cost method

The total cost method considers all expenses and income incurred in the financial year – regardless of whether they are directly related to the products or services sold. It is particularly common in German-speaking countries and among SMEs with a more traditional accounting structure.

Formula:
EBIT = Revenue + Change in inventory + Capitalized own work – Cost of materials – Personnel expenses – Depreciation ± Other operating income/expenses

EBITDA = Revenue + Change in inventory + Capitalized own work – Cost of materials – Personnel expenses ± Other operating income/expenses

Cost of sales method

With the cost of sales method, only those costs that are directly related to the revenue generated are taken into account. It is frequently used by larger, internationally active companies and is common particularly under IFRS or Swiss GAAP FER financial statements.

Formula:
EBIT = Revenue – Cost of goods sold – Selling and administrative expenses ± Other operating income/expenses

EBITDA = Revenue – Cost of goods sold – Selling and administrative expenses ± Other operating income/expenses + Depreciation + Amortization

Derivation from net income

This method is particularly suitable when only the annual financial statements are available. The starting point is the already determined net income (net profit), from which the interest and tax components are added back.

Formula:
EBIT = Net income + Income tax expense – Tax income + Interest expense – Interest income

EBITDA = Net income + Income tax expense – Tax income + Interest expense – Interest income + Depreciation + Amortization

Comparison of calculation methods

EBITDA variants and their informative value

In practice, EBITDA is often further adjusted in order to present a company’s operating performance as realistically and comparably as possible. Such adjustments lead to so-called EBITDA variants, which are mainly used in business valuation, investment decisions or creditworthiness assessments. The most common variants are Adjusted EBITDA, Normalized EBITDA and Structuring EBITDA.

Adjusted EBITDA

With Adjusted EBITDA, extraordinary, one-off or non-operating effects are eliminated from the result. The aim is to focus the metric on the company’s sustainable, recurring earning power.

Typical adjustments include:

• One-time restructuring costs
• Legal and consulting costs outside day-to-day business
• Impairments or special depreciation
• Gains or losses from the sale of assets

Advantage: Increased comparability with other companies and across different periods
Risk: Subjective selection of adjustments can distort the informative value

Normalized EBITDA

Normalized EBITDA (also called Recurring EBITDA) goes one step further: it is intended to represent the EBITDA that is achieved under normal, long-term expected conditions. Here too, special effects are removed – but with a focus on cyclical or economically driven fluctuations.

Examples of normalizations:

• Expired rental contracts or supplier discounts
• Temporary revenue spikes due to large orders
• One-off staff bonuses or redundancies

This variant is often used to model a company’s “sustainable” earnings – for example in succession planning or transactions.

Structuring EBITDA

Structuring EBITDA is primarily used in the context of financing or leveraged buyouts (LBOs). It serves to analyze how suitable a company is for certain capital structures – for example to assess debt capacity or investors’ return expectations in the context of mergers and acquisitions.

It is based on Adjusted EBITDA, supplemented by simulated scenarios or future savings (e.g. from synergies after a merger). It is therefore not a purely “historical metric”, but rather a planned figure for financing partners.

For Swiss companies, the following applies: depending on the objective – whether applying for loans, preparing a sale or communicating with investors – a differentiated view of EBITDA can be useful. What matters here is transparency of the adjustments and consistent application over time and across peer companies.

Margin as a performance metric

Both EBIT and EBITDA not only allow a view of absolute profit figures, but can also be put in relation to revenue. This results in meaningful margins that show how efficiently a company operates. Particularly in corporate management and industry comparisons, EBIT and EBITDA margins are key indicators.

EBIT margin and EBITDA margin compared

The EBIT margin expresses what share of revenue remains as operating profit after deducting all operating expenses – but before interest and taxes.

Formula:
EBIT margin = (EBIT / Revenue) × 100

The EBITDA margin goes one step further and shows how much operating profit is generated before depreciation.

Formula:
EBITDA margin = (EBITDA / Revenue) × 100

Since EBITDA does not take depreciation into account, the EBITDA margin is generally higher than the EBIT margin. Both indicators are used to assess operating efficiency, but have different informative value depending on the industry and investment intensity.

Interpretation in an industry context

The assessment of EBIT and EBITDA margins depends heavily on the industry. In capital-intensive sectors such as manufacturing or energy, higher depreciation is to be expected – here the EBITDA margin often provides a more realistic picture of operating performance. In labor-intensive service sectors, however, EBIT is usually more meaningful.

Typical interpretation benchmarks (industry-independent and as a rough guide):

Whether a margin is considered high or low depends on whether it is the EBIT or EBITDA margin. Since depreciation is not recognized in EBITDA, EBITDA margins are generally higher. Depending on the business model, scale and market position, even a low margin can be economically viable – for example for platform providers or highly automated processes.

For financial managers in Swiss companies, it is therefore crucial to view EBIT and EBITDA margins over time, in comparison with the industry average and in relation to internal targets. Only this contextualization makes the metrics truly relevant for steering. In the case of negative margins or sustained losses, there is also the risk of capital loss or even over-indebtedness, which entails specific business and legal consequences.

Application in the Swiss corporate day-to-day

EBIT and EBITDA are not just theoretical figures, but part of everyday practice in the financial management of many Swiss companies. They support internal management, planning, financing and entrepreneurial decisions such as succession planning or company takeovers. Their relevance arises from their standardization and comparability – especially in an international context.

Controlling, planning and financing

In operational controlling, EBIT and EBITDA provide valuable indications for assessing business performance – for example in monthly or quarterly reporting. Both metrics make it possible to highlight operating success independent of financing structure and tax strategy. They are particularly suitable for:

• Budget comparisons and forecast deviation analyses
• Comparisons between segments or product lines
• Target agreements with segment heads or management

EBIT and EBITDA also play a central role in financial planning, for example in:

• Determining repayment capacity for loans
• Calculating covenants in loan agreements
• Evaluating investment projects
• Processing international business transactions via a fiscal representative in Switzerland

Valuing companies using EBIT and EBITDA multiples

In particular, in company sales or equity transactions, EBIT and EBITDA are used to derive enterprise value. So-called multiples are often used, where enterprise value is set in relation to an earnings metric:

Examples of valuation metrics:

• Enterprise value / EBITDA (EV/EBITDA)
• Enterprise value / EBIT (EV/EBIT)

These multiples differ depending on the industry, company size and market environment. For a rough assessment, valuation databases, transaction data or market analyses can be used. However, financial managers should bear in mind that multiples are always a simplified approximation and must be adjusted for individual factors such as growth prospects, synergies or risks.

Differences in accounting standards (CO, IFRS, Swiss GAAP FER)

In Switzerland, the Swiss Code of Obligations (CO) is the relevant accounting standard for most companies. The CO does not require mandatory disclosure of EBIT or EBITDA in the income statement – the metrics therefore have to be derived from existing line items.

International standards such as IFRS or Swiss GAAP FER are used in particular for listed or group-managed companies. Their more structured layouts make it easier to identify EBIT and EBITDA or even require their explicit disclosure.

For comparability – for example in business valuations or ratings – it is crucial to state transparently how EBIT and EBITDA were calculated in order to avoid misinterpretations.

Comparison with other metrics

EBIT and EBITDA are key metrics for assessing operating earning power. However, they only fully reveal their informative value in combination with other indicators. Particularly in financial analyses or investment decisions, a comparison with EBT, net income and cash flow is essential to obtain a holistic picture of the company’s situation.

EBIT vs. EBT

EBT stands for “Earnings Before Taxes” – i.e. profit before tax. Unlike EBIT, it already includes the effect of the financial result (interest and similar income or expenses). EBT thus shows how both operating business and financing structure affect the result.

Difference at a glance:

• EBIT: before interest and taxes
• EBT: after interest, but before taxes

Practical use:
EBT is suitable when financing costs are also to be included in corporate valuation or management – for example when assessing overall profitability or simulating tax burdens.

EBIT vs. net income

Net income is the “bottom line” of the income statement. It includes all operating and extraordinary income and expenses, including taxes and the financial result.

Main difference:
Net income includes all non-operating or one-off effects such as provisions or hidden reserves – whereas EBIT focuses on operating business.

Important for financial managers:
While net income is decisive for dividend policy or the tax result, EBIT is much better suited to assessing sustainable operating performance.

EBITDA vs. cash flow

EBITDA is often confused with operating cash flow, as both figures do not include interest, taxes or depreciation. However, they are not identical.

Important distinction:

• EBITDA is based on the profit for the period
• Operating cash flow also takes into account cash flows, e.g. from working capital

Conclusion:
EBITDA is a simplified approximation of operating cash flow – but not equivalent. Anyone who wants to make well-founded statements about a company’s liquidity position should always also look at the cash flow statement.