Earnings Before Tax (EBT)
What it is:
How it works (Example):
For the Year Ended Dec 31, 2009
|Earnings Before Taxes||$150,000|
|Income Tax expense||$50,000|
In this example, EBT is $150,000 while net income is $100,000.
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.