What is the difference between gross profit and EBITDA?

Gross profit and EBITDA are two different ways to measure a company’s profitability. Gross margin shows profits generated from the core business activity, while EBITDA shows a business’s earnings before interest, taxes, depreciation, and amortization. Business owners can benefit by knowing both.

How does EBITDA affect a company's long-term financial health?

Additionally, EBITDA does not consider changes in working capital or capital expenditures, which are crucial factors in evaluating a company’s long-term financial health. Gross profit represents the profit a company earns from its core business operations after deducting the cost of goods sold (COGS).

What does EBITDA stand for?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company’s operating performance, indicating its profitability before accounting for non-operational expenses such as interest, taxes, depreciation, and amortization.

What is a gross profit?

Gross profit is the income earned by a company after deducting the direct costs of producing its products or providing its services. It measures how well a company generates profit from its direct labor and direct materials. Gross profit does not include non-production costs such as costs for the corporate office.