Earnings before tax (EBT)

What is the profit before tax (EBT)’

Earnings before tax (EBT) financial performance of the company. His calculation of revenue minus expenses, excluding tax. EBT is a line item in the statement of profit and loss of the company. It shows revenues cost of goods sold (cogs), interest, amortization, General and administrative expenses and other operating expenses are deducted from gross revenues.

Breaking down the ‘profit before tax (EBT)’

Ebt is the money retained within the company before deducting tax expenses. It is a measure of accounting for the company’s operating and non-operating income. All companies calculate EBT in the same order. Because it is “pure attitude”, he uses figures that can be found exclusively on the income. Analysts and accountants get EBT through this financial report. The company is the first record of their income as the top line number.

For example, if the company sells 30 widgets at $ 1,000 apiece in January, its revenue for the period is $30,000. The company then estimates its cost of goods sold (cogs) and subtracts this number from the income of 30,000$. If it costs the company $100 to produce one widget, its cogs for January is $3,000. This means that the gross income $27,000 ($30,000 – 3,000 $= $27,000).

Once a company determines its gross income, it counts all of its operating expenses together and subtract this figure from the gross. The company’s operating expenses may include any expenses related to its daily operations, such as wages and salaries, rent and other overhead. If the company is a technology company with a significant investment in human capital, it may have a salary of 10,000 per month and monthly rent in the amount of $ 1,000. This higher cost of production means that it will deduct $11,000 in costs from gross revenues. Using our example above for the company as a result, the profit before interest, tax, depreciation and amortisation (EBITDA) is around 16000$.

Assuming that the company does not own any tangible assets, but instead chooses to lease the computers and server space from Amazon, its profit before interest and tax (ebit) will also be equal to 16,000$. If he has $1,000 in monthly interest costs, its profit will be $15,000.

BCI as a tool for comparison

Ebt is important because it removes the effects of taxes when comparing businesses. For example, while U.S. corporations face the same tax rates at the Federal level, they face different tax rates at the state level. As companies can pay different tax rates in different States, BCI allows the investor to compare the profitability of similar companies in different tax jurisdictions. Further, EBT is used to calculate performance metrics, such as pre-tax profit.

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