What is the Difference Between EBITDA and Net Income?

EBITDA and net income are both ways of measuring a company’s earning power. However, many people consider EBITDA a more accurate measurement because of how it is calculated. While net income is the business’s earning power after interest, taxes, depreciation, and amortization are taken into account, it can give a slightly misleading look at the company’s growth.

If you need help analyzing your company’s financial situation, you should speak with trusted legal representatives who understand the nuances of business law. Our law firm works with medical business owners to create the best structure, offering lower risk and greater tax benefits. Contact us today for assistance in understanding your company’s true earning power and to find out how to assess your true earning power.

What is EBITDA?

EBITDA is a helpful way of analyzing a company’s earnings for small businesses and when someone wants to evaluate how a business is doing regarding factors that can be controlled. It leaves out the negative factors that cannot be controlled, such as interest, taxes, depreciation, and amortization, giving a more realistic view of what the company actually brings in. Many people feel that a company’s EBITDA is a more accurate view of profitability as it removes these categories.

How is Net Income Calculated?

On the other hand, net income looks at the company’s earnings after accounting for the uncontrolled factors of taxes and other expenses. While this can be valuable information in some circumstances, it can portray an inaccurate image of the company’s earning power if used incorrectly.

For example, in companies where accrual accounting is used, it could appear that net profits are high, yet payments may not have been actually collected from customers. This can obviously create problems and is a detail that knowledgeable lawyers will help the business owner catch before it turns into a significant risk.

Can Our Lawyers Help You?

Many business owners don’t realize that corporate lawyers like those at our law firm can help them with the financial aspects of their business. But a small investment now can pay off with huge dividends down the road. Many medical businesses benefit from legal counsel during the restructuring that gives their practice greater efficiency and minimizes their tax burden.

For help understanding how well your business is currently operating as well as incorporating your business if that is the best option for you, reach out to our law firm right away. We have helped many clients get their businesses working more smoothly with the greatest tax benefits, and we know how to help you too. Whether you need to incorporate your medical practice, create a shareholders’ agreement, or buy or sell a clinic, we have the know-how to get you through this complex process. Call us now at (438) 805-5515 to schedule a consultation and get started today!