Earnings Before Interest Tax and Amortisation (EBITA)

When trying to estimate the profits of a company, investment analysts are always trying to get to a 'true' figure. By using Earnings Before Interest Tax and Amortisation (EBITA) rather than a measure like Gross Profit you can include all the operating expenses of actually running the business but exclude charges which the company has little control over.

For example, the tax rules are not a factor in driving the business and the company can only abide by them. When using EBITA instead of EBIT, we also exclude amortisation in the calculation of profit, since this represents an arbitrary, artificial depreciation of intangible assets which will have no effect on future cash flows to the company.

A figure such as Gross Profit includes all company expenses (yet to be subtracted) whether the company can control them or not, and whether they are an arbitrary accounting mechanism or not, and so perhaps does not represent as good an estimate of profit in the way the EBITA does.

What to do if you need more help

If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.

We hope you found this information useful.

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