What is EBITDA?
EBITDA is like figuring out how much money a company makes from selling its stuff, before paying for some important things. It's like knowing how much money your lemonade stand made before paying for the lemons, sugar, and the table.
What is NET INCOME?
Net Income is how much money a company actually gets to keep after paying all its bills. It's like knowing how much money you get to put in your piggy bank after buying the lemons, sugar, table, and even paying your little brother for helping!
Key Differences
Think of it like this: EBITDA is the money before a lot of expenses, while Net Income is the money after all the expenses. EBITDA helps you see how good a company is at its main job, like selling lemonade. Net Income shows you how much money the company really earned. One big difference is that EBITDA doesn't include taxes or interest on loans, but Net Income does.
When to Use Each One
Imagine you're trying to decide which ice cream shop is better. EBITDA can help you see which shop is better at making and selling ice cream, without worrying about things like if they have a loan for their freezer. Net Income tells you which shop actually made more money overall, after paying for everything, including the loan and the ice cream ingredients. If you just want to know which is a better business overall, look at Net Income. If you want to know who's better at selling their main product, look at EBITDA.
The Bottom Line
Net Income is usually the best place to start because it shows the real profit. EBITDA is useful for comparing companies, but it doesn't show the whole picture. Think of Net Income as the final score, and EBITDA as a way to see how well the team played the game. Both are important, but Net Income is easier to understand at first!