how to calculate ebiat
the calculation for ebiat is relatively straightforward it is the company s ebit x 1 tax rate a company s ebit is calculated in the following way for example let s assume a company reports sales revenue of 1 million for the year and a non operating income of 30 000 its cost of goods sold amounts to 200 000 while depreciation and amortization expenses are 75 000 selling general and administrative expenses are 150 000 and other miscellaneous expenses are 20 000 finally the company also reports a one time special expense of 50 000 for the year in this example the ebit for the company would be calculated as ebit revenues operating expenses non operating incomeebit 1 000 000 200 000 75 000 150 000 20 000 50 000 30 000 535 000if the tax rate for the company is 30 then ebiat is calculated as ebiat ebit x 1 tax rate 535 000 x 1 0 3 374 500some analysts may argue that the special expense should not be included in the calculation because it is not recurring whether to include it depends on the analyst s judgment the significance of the special expense plays a role in this decision for example if we exclude this one time special expense from the company s calculations the results would be by omitting the special expense the ebiat for the company is 9 4 higher which could impact the decisions of its management team or other stakeholders ebiat vs ebitda vs ebit what s the difference ultimately ebiat ebitda and ebit are all used to measure a company s profitability but they differ in what s included in their calculations understanding the differences between the three metrics can help you more accurately evaluate a company s financial health investors should note that non gaap metrics like ebiat ebitda and ebit do not have to adhere to the strict guidelines of gaap some companies may use non gaap measures like ebiat to paint a company s performance in a more favorable light for example in the fiscal year 2019 pinterest recorded a loss of 1 36 billion however by adjusting certain costs the company transformed this loss into a non gaap profit of 17 million 2the bottom lineebiat is just one of a few metrics for assessing a company s profitability and financial health its value lies in offering potential valuable insights especially for companies with significant tax liabilities but as a non gaap measure it does not conform to the standardized practices of gaap metrics so ebiat results can differ from one company to another company insiders investors and financial analysts should consider evaluating a company s ebiat along with other non gaap metrics like ebitda and ebit and with gaap metrics such as net income operating income and cash flow to gain a more balanced view of a company s financial health 