Earnings Before Interest After Taxes (EBIAT)

What is ‘Earnings Before Interest After Taxes – EBIAT’

Earnings before interest after taxes (EBIAT) is a financial measure that is an indicator of a company’s operating performance. EBIAT, which is equivalent to after-tax EBIT, measures a company’s profitability without taking into account the capital structure, like ratios such as debt to equity. EBIAT measures a company’s ability to generate income from its operations for a specified time period.

Earnings Before Interest After Taxes Calculation and Example

The calculation for EBIAT is very straightforward. It is the company’s EBIT x (1 – Tax rate). A company’s EBIT is calculated in the following way:

EBIT = revenues – operation expenses + non-operating income

Earnings Before Interest After Taxes (EBIAT) FAQ

Are earnings before or after taxes?

Earnings are commonly defined as net income after taxes, which is sometimes referred to as the bottom line or profits of a corporation.

How do you calculate after tax EBIT?

Start with the gross profit and work your way down to the profits before interest and taxes. Subtract operational expenses from gross earnings to arrive at net profits. When computing EBIT, do not reduce the cost of business capital and tax liabilities since these items are not included in the interest expense and taxes that are calculated separately.

Is EBIT the same as pre tax income?

EBT (earnings before taxes) and pretax income (income before taxes) are same. Both phrases have the same meaning and may be used interchangeably in the same context.

Why do we subtract depreciation in the calculation of EBIT?

EBIT is a company's operational profit before interest and taxes, and it is expressed as a percentage of revenue. However, when assessing profitability, EBITDA (earnings before interest, taxes, depreciation, and amortization) is used instead of EBIT since it excludes depreciation and amortization expenditures from EBIT. As a result, depreciation expenditure has a negative impact on profitability.

Why is EBITDA so important?

EBITDA is simply net income (or profits) plus interest, taxes, depreciation, and amortization, all of which are put together. Companies and industries may be compared on the basis of their profitability using EBITDA, which eliminates the impacts of finance and capital expenditures.

What is a healthy EBITDA?

It varies from industry to industry how much enterprise value (EV) is compared to earnings before interest, taxes, depreciation, and amortization (EBITDA). The average enterprise value to earnings per share (EV/EBITDA) for the S&P 500 was 14.20. Generally speaking, analysts and investors consider an EV/EBITDA ratio of less than 10 to be healthy and above the industry average.

Further Reading