Earnings Before Tax (EBT)

What it is:

Earnings before tax (EBT) measures a company's operating and non-operating profits before taxes are considered. It is the same as profit before taxes.

How it works/Example:

Simplifying things a bit, revenue minus expenses equals earnings. The resulting figure is usually listed on a company's income statement right before taxes are listed. For example,

             Company XYZ
           Income Statement
For the Year Ended Dec 31, 2009

Sales Revenue $1,000,000
Expenses    $850,000
Earnings Before Taxes $150,000
Income Tax expense $50,000
Net Income $100,000

In this example, EBT is $150,000 while net income is $100,000.

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Why it Matters:

EBT provides investment analysts with useful information for evaluating a company’s operating performance without regard to tax implications. By removing the tax factor, EBT helps to minimize a variable that may be unique from company to company, in order to focus the analysis on operating profitability as a singular measure of performance. Such analysis is particularly important when comparing similar companies across a single industry.

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