What is Earnings Before Tax (EBT)?
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 Does Earnings Before Tax (EBT) Work?
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 Does Earnings Before Tax (EBT) Matter?
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.