What is ‘EBITA’
EBITA is an acronym for earnings before interest, taxes and amortization. To calculate a company’s EBITA, start with its earnings before tax (EBT), which can be found on the income statement, and add interest and amortization expenses back in. EBITA is a variation of the more commonly used EBITDA, which deducts depreciation expenses. Both are used to gauge a company’s operating profitability, that is, the earnings it generates in the normal course of doing business, ignoring capital expenditures and financing costs. Both measures are sometimes considered indications of cash flow.
As a telecom, AT&T Inc. (T) must invest in, maintain and periodically replace a massive portfolio of fixed assets in order to keep its network running. As of December 31, 2014, its balance sheet showed net property, plant and equipment assets of $113 billion, compared to total assets of $293 billion and current assets of just $32 billion. Seeing that, investors should be hesitant to ignore depreciation on these assets; in other words, an EBITDA calculation for AT&T would hide more than it would show. Calculating EBITA, however, is tricky given the presentation of the income statement (all figures in millions of USD):
EBITA in Context
EBITDA emerged in the 1980s during a spate of leveraged buyouts. It was intended to give a picture of how well a company could service its debts, but soon took on a life of its own, becoming a way to state more attractive earnings than the actual bottom line. Since it is a non-GAAP measure, there is no requirement that companies use consistent criteria when calculating EBITDA from quarter to quarter. Further adjustments can be made to the already-adjusted figure, in effect allowing for subjective interpretations of a company’s “true” earnings.
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