Earnings Before Interest, Taxes and Amortization or EBITA is used commonly when calculating profitability and efficiency ratios for firms. The numbers needed for calculating this are often found in a company's income statement. This is what some people use to get a ballpark figure of their raw earnings.
Earnings before interest, tax and amortization or EBITA is almost like EBIT but removes amortization because it is always a non-cash item and doesn't interest most serious investors. Just to give you an idea on how negligible amortization is to serious investors, they take more into consideration depreciation when determining viability. Amortization often relates to a company's intangible assets and can't be used even in rough approximation for replacement cost.
Just follow the steps below to calculate your EBITA. You'll need the company income statement and a handy calculator to do the math for you.
- Locate the income statement. Companies usually provide these without much red tape and bureaucracy. This document will show you a company's profit and loss this is important. When you have the company income statement, look for the net income.
- Next, locate the line items for interest, taxes and amortization. Add up these line items. This is your total.
- Finally, subtract the total you got from computing line items for interest, taxes and amortization in Step 2 from the amount you computed for in Step 1. The result of this is your EBITA.
Calculating for EBITA is done in those easy to follow steps and you should come up with a robust number that will help you make decision regarding your investments. But be advised that Earnings Before Interest, Taxes and Amortization or EBITA is not cash flow. A company that has great Earnings Before Interest, Taxes and Amortization or EBITA does not mean they have good cash flow.
Nowadays, it's easy to compute for EBITA. In fact, it is taught in many basic business courses in any kind of learning institute. Knowing how to calculate for this doesn't mean that it is the formula for success or that you know how to invest in a company. Success in investment means you have to do your homework when it comes to which companies are viable for investments.
If you are using EBITA calculations for determining investment you may want to refer to the site below for a crash course on investing
Here are also a few sites that give you an overview of investment and business
Always be wary of online information! Some "experts" make it out that investing is easy and low-risk. Nothing can be further from the truth as even small scale business men know that a lot is at stake in any level of business. When digesting online information, always be mindful of columnist's ulterior motive. People can make numbers prove anything and can be quite convincing when crunching impressive numbers. They may be trying to get you to invest in something they've sunk their money in and would just like to recoup their losses.
Armed with the basic computation formula for EBITA and if you do a bit of online investigating, you should be able to figure out which companies are good investments. It's a risk, but if you're lucky and have the right information that risk will pay off.