EBT stands for Earnings Before Tax (also called pre-tax income or pre-tax profit). It is the profit a company has left after subtracting interest, but before income tax is applied. EBT isolates performance from the effect of differing tax rates, which makes it useful for comparing companies across states or countries.
The EBT formula
- From operating profit: EBT = EBIT − Interest expense (+ interest income)
- From the bottom line: EBT = Net income + Income tax
So EBT sits one step above net income: subtract tax from EBT and you get the final profit.
How EBT relates to the other earnings measures
Working down the income statement:
| Measure | What's removed so far |
|---|---|
| EBITDA | nothing (operating profit + D&A added back) |
| EBIT | depreciation & amortisation |
| EBT | D&A and interest |
| Net income | D&A, interest and tax |
A worked example
| Line | Amount |
|---|---|
| EBIT (operating income) | $300,000 |
| − Interest expense | ($50,000) |
| EBT (earnings before tax) | $250,000 |
| − Income tax (e.g. 20%) | ($50,000) |
| Net income | $200,000 |
Why EBT matters
Because tax rates differ by jurisdiction and by year, EBT and the pre-tax margin (EBT ÷ revenue) let you compare the underlying performance of two businesses on a like-for-like basis. In a valuation, the earnings multiple is usually applied to EBITDA or SDE rather than EBT — but EBT is the cleanest read on profit after the cost of debt.
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