Earnings Before Interest and Taxes (EBIT)

Earnings before interest and taxes is a company's profit from operations before financing costs and income tax. Wikipedia redirects "net operating income" to this article, and the two measures share the idea of stopping before debt. They differ on one line: EBIT deducts depreciation, and a property's NOI does not.

For a rental, the closest corporate match is EBITDA, not EBIT. NOI is rent less vacancy and the cash cost of running the building, so a $300,000 house with $18,270 of NOI reports that figure whether the owner depreciates it over 27.5 years or not. An EBIT statement for the same house would subtract roughly $8,700 of annual depreciation first and show about $9,570.

The difference matters when you read a seller's pro forma or a company's filing. If a figure labeled operating income has depreciation taken out, add it back before dividing by a cap rate, or the value will come in around a third low. Lenders and appraisers work from the pre-depreciation number, which is why the EBIT redirect on Wikipedia is a poor fit for real estate.

Further reading: Earnings Before Interest and Taxes (EBIT) on Wikipedia.