EBITDA should not be confused with gross profit. While we can use both metrics to assess a company's profitability, they are calculated in different ways and thus provide a different view of its core performance.
Gross profit is calculated as a company’s total sales less the direct costs incurred from producing those goods or services (often referred to as ‘costs of goods sold’,or simply COGS). Like EBITDA, gross profit does not include interest, tax, depreciation and amortisation – but it also excludes other overheads not directly related to production, like advertising and marketing, rent and utilities, and accounting and other general and administrative expenses. EBITDA includes these other overheads. Therefore, as a general rule, EBITDA will always be lower than gross profit because it includes additional operating expenses that do not form part of the direct costs of production or COGS.