What are the commonly-used measures of earnings?
The commonly-used measures of earnings are:
- EBITDA – meaning Earnings before Interest, Tax, Depreciation and Amortisation
- EBIT – meaning Earnings before Interest and Tax
- Profit before Tax – meaning Earnings before Tax
Why is it important to understand the different measures of earnings in a transaction context?
A prospective buyer will want to understand the different measures of earnings (adjusted for any non-market costs which will not continue post-sale) in order to place a value on your company.