What Is Earnings Before Interest After Taxes (EBIAT)?
Let me explain Earnings Before Interest After Taxes, or EBIAT—it's one of several financial measures you can use to evaluate a company's profitability over a period like a quarter or a year. You calculate it simply by subtracting taxes from the company's Earnings Before Interest and Taxes (EBIT).
Keep in mind that EBIAT isn't based on generally accepted accounting principles (GAAP), so companies aren't required to report it externally or in public disclosures. This lack of standardization means different companies might calculate EBIAT in varying ways, which can complicate comparisons between them.
Even so, EBIAT can be a valuable tool for internal management and investors like you. It provides insights that help with decisions, such as determining how much to invest in future growth.
Key Takeaways
- EBIAT is a non-GAAP financial metric that evaluates a company’s profitability.
- Unlike other metrics, it includes taxes as an expense.
- EBIAT may be most relevant for businesses with significant tax liabilities, as it reflects a company’s tax burden.
- Investors should compare EBIAT with other metrics for a more comprehensive financial picture of a company.
Understanding EBIAT
At its core, EBIAT gauges the cash a company has available to repay its debt obligations—before considering any interest expenses on that debt, but after accounting for taxes.
One important aspect is that EBIAT treats taxes as an unavoidable expense. When you calculate it, you're including taxes and stripping out any tax benefits from debt financing, like deducting interest to lower taxable income.
The goal here is to get a clearer, more accurate view of the company's financial standing by removing elements that could artificially inflate or deflate its apparent strength.
This metric becomes especially relevant when analyzing companies with heavy tax loads, as it highlights the tax burden and offers a realistic sense of the cash left for obligations.
How to Calculate EBIAT
Calculating EBIAT is straightforward: it's the company's EBIT multiplied by (1 minus the tax rate). First, you need to figure out EBIT, which is revenues minus operating expenses plus non-operating income.
Take this example—suppose a company has sales revenue of $1 million, non-operating income of $30,000, cost of goods sold at $200,000, depreciation and amortization at $75,000, selling, general, and administrative expenses at $150,000, other miscellaneous expenses at $20,000, and a one-time special expense of $50,000.
EBIT would be $1,000,000 minus ($200,000 + $75,000 + $150,000 + $20,000 + $50,000) plus $30,000, which equals $535,000.
With a 30% tax rate, EBIAT is $535,000 times (1 - 0.3), or $374,500.
Some analysts might exclude that special expense since it's not recurring—it's up to your judgment based on its significance. If you leave it out, EBIT becomes $585,000, and EBIAT jumps to $409,500, which is 9.4% higher and could influence management or stakeholder decisions.
EBIAT vs. EBITDA vs. EBIT: What’s the Difference?
EBIAT, EBITDA, and EBIT all measure profitability, but they differ in what's included. EBIAT focuses on earnings after taxes but before interest.
It's not as widely used as EBITDA, which is earnings before interest, taxes, depreciation, and amortization—another non-GAAP metric that factors in those depreciation and amortization costs.
EBIT, on the other hand, excludes interest and taxes altogether and is closest to operating income.
Grasping these differences will help you evaluate a company's financial health more accurately.
Warning
Be cautious with non-GAAP metrics like EBIAT, EBITDA, and EBIT—they don't follow GAAP's strict rules. Companies might use them to present performance more favorably. For instance, in 2019, Pinterest reported a $1.36 billion loss under GAAP, but adjustments turned it into a $17 million non-GAAP profit.
The Bottom Line
EBIAT is one of several metrics for assessing profitability and financial health, particularly useful for companies with big tax liabilities. As a non-GAAP measure, it lacks standardization, so results vary across companies.
If you're a company insider, investor, or analyst, I recommend looking at EBIAT alongside other non-GAAP options like EBITDA and EBIT, plus GAAP metrics such as net income, operating income, and cash flow, to get a well-rounded perspective.
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