What’s the Difference Between NOI vs. EBITDA?
NOI and EBITDA are two similar measures of profitability in real estate with some key differences.
NOI vs. EBITDA: What is the Difference?
Net Operating Income Definition (NOI)
NOI is a real estate metric that stands for “net operating income” and measures the profitability of an income-generating real asset.
Since NOI allows an investor to gauge the profitability of a real asset and eliminate the effects of corporate-level expenses, this metric is often considered the most important profitability measure in real estate.
NOI eliminates the effects of these corporate-level expenses by isolating the core operating profits of the real asset in question, namely by excluding non-operating items such as depreciation, interest, taxes, corporate-level SG&A expenses, Capex, and financing payments.
The net operating income (NOI) can be calculated using the following formula.
NOI Formula
- NOI = Rental and Ancillary Income – Direct Real Estate Expenses
Learn More → Net Operating Income (NOI)
EBITDA Definition
EBITDA measures a company’s profitability before the effects of certain accounting or financial decisions.
Since it is a non-GAAP measure of profitability, companies are not required to report EBITDA on their financial statements.
However, investors will almost always use a company’s GAAP measures to determine EBITDA, given the metric’s usefulness in assessing profitability.
When comparing companies, investors will often use EBITDA as the metric of comparison as opposed to net income, given that EBITDA eliminates the effects of certain non-operating items that may be the result of accounting decisions or financing provisions.
EBITDA is found by taking a company’s earnings before interest and taxes, also known as operating income, and then adding back depreciation and amortization.
EBITDA Formula
- EBITDA = Operating Income + Depreciation + Amortization
- EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Learn More → EBITDA