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Earnings Before Tax (EBT)

Earnings Before Tax (EBT)

What is 'Earnings Before Tax - EBT'

Earnings before tax (EBT) is an indicator of a company's financial performance, calculated as revenue minus expenses, excluding tax. EBT is a line item on a company's income statement that shows how much the company has earned after the cost of goods sold (COGS), interest, depreciation, general and administrative expenses and other operating expenses have been subtracted from gross sales.

Explaining 'Earnings Before Tax - EBT'

EBT can be thought of as the money retained internally by a company, prior to deducting the money due to the government in the form of taxes. It is an accounting measure of a company's operating and non-operating profits.

Deriving a Company's EBT

All companies calculate their EBT in the same manner. Since it is a "pure ratio," meaning that it uses numbers found exclusively on the income statement, analysts and accountants derive EBT through that specific financial statement. A company first records its revenue as the top line number. If, for example, a company sells 30 widgets for $1,000 a piece during the month of January, its revenue for the period is $30,000. The company then assesses its COGS, subtracting that number from $30,000. If it costs the company $100 to produce a single widget, its COGS for January is $3,000. This means that its gross revenue is therefore $27,000.

EBT as a Tool for Comparisons

EBT is important because it removes the effects of taxes. For example, while U.S.-based corporations face the same tax rates at the federal level, they face different tax rates at the state level. Since companies may pay different tax rates in different states, EBT allows investors to compare the profitability of similar companies in different tax jurisdictions. Further, EBT is used to calculate performance metrics, such as pretax profit margin.


Further Reading

Corporate taxation, debt financing and foreign-plant ownershipCorporate taxation, debt financing and foreign-plant ownership
www.sciencedirect.com [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Russia's virtual economyRussia's virtual economy
heinonline.org [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Do personal taxes affect corporate financing decisions?Do personal taxes affect corporate financing decisions?
www.sciencedirect.com [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Evidence on the impact of the agency costs of debt on corporate debt policyEvidence on the impact of the agency costs of debt on corporate debt policy
www.jstor.org [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

The debt-equity choiceThe debt-equity choice
www.jstor.org [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Debt and the marginal tax rateDebt and the marginal tax rate
www.sciencedirect.com [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Tax shelters and corporate debt policyTax shelters and corporate debt policy
www.sciencedirect.com [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Market perceptions of discretionary accruals by debt renegotiating firms during economic downturnMarket perceptions of discretionary accruals by debt renegotiating firms during economic downturn
www.sciencedirect.com [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …

Determinants of target capital structure: The case of dual debt and equity issuesDeterminants of target capital structure: The case of dual debt and equity issues
www.sciencedirect.com [PDF]
… up in current earnings and since inflation per se will automatically reduce the ratio of earnings to interest … But holders need pay no taxes on their gains until realized and only a small … for large low-levered corporations; the lack of widespread market interest in income bonds; and …


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