What is 'Earnings Before Interest After Taxes - EBIAT'

Earnings before interest after taxes (EBIAT) is a financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT, measures a company's profitability without taking into account the capital structure, like ratios such as debt to equity. EBIAT measures a company's ability to generate income from its operations for a specified time period.

!--break--EBIAT takes taxes into account because taxes are viewed as an ongoing expense that is beyond a company's control, especially if it is profitable. EBIAT is not as commonly used in financial analysis as the earnings before interest, taxes, depreciation and amortization (EBITDA) measure, however, it is monitored as it represents cash available to pay creditors if there is ever a liquidation event. If the company does not have much depreciation or amortization, EBIAT may be more closely watched.

Earnings Before Interest After Taxes Calculation and Example

The calculation for EBIAT is very straightforward. It is the company's EBIT x (1 - Tax rate). A company's EBIT is calculated in the following way:

EBIT = revenues - operating expenses + non-operating income

As an example, consider the following. Company X reports sales revenue of $1,000,000 for the year. Over that same time period, the company reports non-operating income of $30,000. The company's cost of goods sold is $200,000, while depreciation and amortization are reported at $75,000. Selling, general and administrative expense are $150,000 and other miscellaneous expenses are $20,000. The company also reports a one-time special expense of $50,000 for the year.

In this example, the EBIT would be calculated as:

EBIT = $1,000,000 - ($200,000 + $75,000 + $150,000 + $20,000 + $50,000) + $30,000 = $535,000

If the tax rate for Company X is 30%, then EBIAT is calculated as:

EBIAT = EBIT x (1 - tax rate) = $535,000 x (1 - 0.3) = $374,500

Some analysts argue that the special expense should not be included in the calculation because is not recurring. It is at the discretion of the analyst doing the calculation whether to include it or not depending on the magnitude of the special, but these types of line items can have large results. In this example, if the one-time special expense is excluded from the calculations, the following numbers would result:

EBIT without special expense = $585,000

EBIAT without special expense = $409,500

Without the special expense included the EBIAT for Company X is 9.4% higher, which may have large implications for decision-makers.

BREAKING DOWN 'Earnings Before Interest After Taxes - EBIAT'

RELATED TERMS
  1. Degree Of Operating Leverage - ...

    A type of leverage ratio summarizing the effect a particular ...
  2. Operating Margin

    Operating margin is a measure of a company's profitability, and ...
  3. Non-Operating Expense

    An expense incurred by activities not relating to the core operations ...
  4. Times Interest Earned - TIE

    Times interest earned (TIE) is a metric used to measure a company's ...
  5. Accounting Profit

    A company's total earnings, calculated according to Generally ...
  6. Tax Rate

    A tax rate is the percentage at which an individual or corporation ...
Related Articles
  1. Taxes

    EBIT (Earnings Before Interest and Taxes)

    Earnings before interest and taxes, or EBIT, takes a company’s revenue, or earnings, and subtracts its cost of goods sold and operating expenses.
  2. Investing

    Gross, Operating and Net Profit Margins

    A company’s income statement includes the company’s gross, operating and net profits.
  3. Investing

    EBITDA

    Otherwise known as Earnings Before Interest, Taxes, Depreciation and Amortization. Learn more about this indicator of a company's financial performance.
  4. Investing

    Operating Profit

    Operating profit is the profit generated from the core business of a company before accounting for interest and taxes.
  5. Investing

    Analyzing Operating Margins

    Learn how to analyze operating margins and how to put this aspect of equity analysis to work.
  6. Investing

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  7. Investing

    10 Common Finance Terms Every Newbie Needs To Know

    In order to get a better understanding of what you read in markets news, we’ll briefly explore the terms you commonly encounter.
RELATED FAQS
  1. How do you find the level of EBIT where EPS doesn't change?

    Learn about the relationship between earnings before interest and taxes (EBIT and earnings per share (EPS) and how to find ... Read Answer >>
  2. What is the difference between EBIT and operating income?

    Operating income is considered an official financial measure under GAAP while EBIT is a non-GAAP measure. Read Answer >>
  3. What is the difference between EBIT and EBITDA?

    Take a deeper look at the actual differences between EBIT and EBITDA, and see how investors often confuse these terms with ... Read Answer >>
  4. What is the difference between EBIT and cash flow from operating activities?

    Learn about the difference between earnings before interest and taxes and cash flow from operating activities in financial ... Read Answer >>
  5. What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating ... Read Answer >>
  6. What are some of the limitations of looking only at the return on total assets?

    Learn about the return on total assets ratio and why the weaknesses of this metric make it an unreliable standalone measure ... Read Answer >>
Hot Definitions
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  4. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  5. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center