EBITA, and similar acronyms EBIT and EBITDA are used to show a company's financial performance from common operating activities. EBITA stands for earnings before interest, taxes and amortization. EBIT takes out amortization as a consideration and EBITDA adds depreciation as a non-operating consideration in the calculation of earnings.
EBITA is similar to a company's operating income. It shows a company's operating income, which results from standard operating activities and includes calculations of sales, costs of goods sold and operating expenses. Managers consider this accounting measurement when making decisions about the company. Shareholders and potential investors also consider EBITA when deciding whether a company is stable from its core operating activities.
EBITA is typically conveyed on a company's income statement. While the actual acronym or calculation of earnings before these special items is not specifically indicated, operating income is shown before non-operating activities are presented. Operating income and non-operating income combined lead to the calculation of net income, or loss. Operating activities include basic sales, costs to create the sales and operating expenses, which include general, selling and administrative expenses. This leads to operating income or loss presentation. Interest revenue or expenses, tax payments and amortization are among the common non-operating income items.
The ITA in EBITA are the three common non-operating items noted. Interest is either interest paid on debt, or interest earned as income from debtors. Taxes are tax payments that companies make in a particular period. Amortization is similar to depreciation in the sense that it is an accounting for the costs of reducing the value of assets over time. For instance, if you depreciate a $7,000 piece of equipment by $500 in a given year, the amortized effect is a reduction in the equipment's value by $500, and an amortization expense of $500 to show the accounting cost of the reduction.
Managers want to understand how a company is performing on primary business activities to know what decisions are needed going forward. Additionally, when companies issue quarterly reports on earnings, they often include regular net income and EBITA calculations. EBITA is typically higher than total net income. Companies often attempt to explain poor net income in a period as a fluke if non-operating items are significant and cut into operating income.
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