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  • 1.  EBIT and operating income

    Posted 02-14-2021 09:09 PM
    Aren't EBIT and operating income the same thing? However some places, Gross profit is termed operating income. Please clarify.
    Thanks
    Nasira


  • 2.  RE: EBIT and operating income

    Posted 02-15-2021 07:50 AM
    Operating income is a measurement that shows how much of a company's revenue will eventually become profits. Operating income is similar to a company's earnings before interest and taxes (EBIT); it is also referred to as the operating profit or recurring profit. The one big difference between operating income and EBIT is that EBIT includes any non-operating income the company generates.

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    Sarah Mohamed Refaat Omar
    Executive Officer
    Cairo
    Egypt
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    Original Message


  • 3.  RE: EBIT and operating income

    Posted 02-15-2021 07:57 PM
    EBIT and Operating Income are interchangeable. I'm not sure where you are getting the information that Gross Profit is termed Operating Income, but these two are not the same thing. Gross Profit = Sales Revenue - Cost of Sales whereas Operating Income = Sales Revenue - Cost of Sales - Operating Expenses OR Gross Profit - Operating Expenses.

    I hope this clarifies the confusion on your end!

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    Daniel Jo, CPA
    Internal Auditor - Risk & Control
    Sunnyvale, CA
    United States
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    Original Message


  • 4.  RE: EBIT and operating income

    Posted 02-15-2021 11:58 PM

    Rayco, Inc. sells 10,000 units at a price of $5 per unit. Rayco's fixed costs are $8,000, interest expense is $2,000, variable costs are $3 per unit, and EBIT is $12,000. Rayco's degree of total leverage (DTL) is closest to:
    1.33.
    5.00.
    3.34.
    2.00.
    You Answered Correctly!
    DTL = [Quantity(Price – Variable costs)] ÷ [Quantity(Price – Variable costs) – Fixed costs – Interest expense] = [10,000 ($5 – $3)] ÷ [10,000 ($5 – $3) – 8,000 – 2,000] = 2.0

    Or by multiplying DOL by DFL

    DOL = [Quantity(Price – Variable costs)] ÷ [Quantity(Price – Variable costs) – Fixed costs] = [10,000 ($5 – $3)] ÷ [10,000 ($5 – $3) – 8,000] = 1.67

    DFL = EBIT ÷ (EBIT – Interest expense) = 12,000 ÷ (12,000 – 2,000) = 1.2

    DTL = DOL × DFL = 1.67 × 1.2 = 2.0

    Isn't the formula for DOL =contribution margin/EBIT? Here gross profit is being used instead of EBIT.




    Original Message


  • 5.  RE: EBIT and operating income

    Posted 02-16-2021 02:15 AM
    No, here he used EBIT not Gross profit.
    DOL = CM / EBIT 
    = [(5-3) * 10,000] / 12,000 
    = 1.67

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    Ahmed Zainalabedin
    Analyst
    Alkhobar
    Saudi Arabia
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    Original Message