NOTE: This is part of our Continue the Learning Post on EBIT vs EBITDA.

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The EBITDA Storytelling Challenge Answer

You’ve looked at two companies with the same EBITDA but different EBIT. Here’s what that might mean—and how to interpret the story behind the numbers.

1. EBIT is lower for Company A. Why?

Because depreciation and amortization are higher. This doesn’t affect EBITDA, but it directly reduces EBIT. The company may own more physical assets, have more capitalized development costs, or carry more intangibles from acquisitions.

2. What does that tell us about Company A’s business?

It’s likely more capital-intensive—think manufacturing, utilities, logistics. These businesses tend to:

• Own more long-term assets (factories, vehicles, equipment)
• Show higher D&A each year
• Require more reinvestment to maintain operations

3. Does that make EBITDA misleading?

Not necessarily—but it can obscure real costs. Depreciation is non-cash, but it reflects asset use and aging. Ignoring it might:

• Overstate ongoing cash-generating ability
• Mask the need for future capital expenditures

4. So which company is “better”?

That depends on what you are doing:

• Looking for near-term cash flow? EBITDA tells you they’re similar.
• Assessing operating performance? EBIT gives the edge to Company B.
• Evaluating future sustainability? You’d want to dig into reinvestment needs, asset age, and capital planning.

The Takeaway

EBIT and EBITDA aren’t competitors. They’re different filters.

• EBITDA removes both financing and non-cash costs to focus on current cash flow.
• EBIT keeps non-cash expenses in, giving a more conservative measure of profitability.

In this case, Company A might generate cash—but it may also need to spend more to stay competitive.

Knowing that helps you ask better follow-up questions. That’s the point.

Back to the Challenge

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Want to keep learning? Check out other Continue the Learning posts.

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Note: This post is dated 2005 to minimize visibility in the blog feed. It was actually published in April 2025. You can still access it directly, but you’ll need to scroll to the earliest entries if browsing chronologically.

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