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A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings before interest, taxes, depreciation and amortization and EBIT), and then determines the optimal use of debt versus equity (equity value).
A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, [1] pronounced / ˈ iː b ɪ t d ɑː,-b ə-, ˈ ɛ-/ [2]) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base.
The formula. ROCE = Earning Before Interest and Tax (EBIT) / Capital Employed ...
In business, operating margin—also known as operating income margin, operating profit margin, EBIT margin and return on sales (ROS)—is the ratio of operating income ("operating profit" in the UK) to net sales, usually expressed in percent.
EBIT (earnings before interest and taxes) = operating profit + interest income + other non-operating income; EBT (Pretax profit, earnings before taxes) = EBIT − interest expenses − other non-operating expenses; Net profit = EBT − tax; Retained earnings = Net profit − dividends; Another equation to calculate net income:
The DSCR calculation under the Pre-Tax Provision Method is EBITDA / (Interest) + (Pre-tax Provision for Post-Tax Outlays) , where Pre-tax Provision for Post-tax Outlays is the amount of pretax cash that must be set aside to meet required post-tax outlays, i.e., CPLTD + (Unfinanced CAPEX) + Dividends. The provision can be calculated as ...
EBIT(1 − (Tax Rate)) / Invested Capital Risk adjusted return on capital (RAROC) Expected Return / Economic Capital Expected Return / Value at Risk Return on capital employed (ROCE) EBIT / Capital Employed This is similar to (ROI), which calculates Net Income per Owner's Equity Cash flow return on investment (CFROI)
The disadvantages of the use of financial result as a Key performance indicator. Operating components may be included in the financial result (e.g.: the income from financing activities).