Earnings Before Interest After Taxes (EBIAT)

Profitability ratios Print Email

Earnings Before Interest and After Taxes is used to measure the ability of a firm to generate income through various operations during a specific course of time. The following formula is used to calculate it:

Earnings Before Interest and After Taxes = Revenue - Operating Expenses + Non-operating expenses

Earnings Before Interest and After Taxes represents the availability of cash in a company’s account that may be used to pay off the amounts of the creditors during liquidation. It is proves to be useful when the company incurs amortization of the assets. If Earnings Before Interest And After Taxes is compared with the earnings before interest and taxes, then it must be said that it is a less common measure.

The financial analysts use Earnings Before Interest And After Taxes when they want to take a look at the performance of the company in the particular accounting cycle in which it is currently operating. We all know that taxes are set by the government and a person who is running a company cannot influence them according to his own will like the way he can take decisions regarding the operations of his company. Therefore, with the use of Earnings Before Interest And After Taxes, the financial analysts consider taxes as a cost of doing business. The reason for this is that a company is legally bound to pay the taxes otherwise it cannot operate.

Earnings Before Interest And After Taxes helps to reduce the financing effects which in turn enables the investors to see that whether the company is profitable or not and what is the status of its financial performance.

Whenever a company’s Earnings Before Interest And After Taxes is being analyzed, it must be done with the combination of other things too like working capital, debt payments, net income and capital requirements.  

Quote Guest, 28 May, 2014
do you include Interest in the calculations given that its an non-opereating expense

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