What is Earnings Before Tax (EBT)?

Earnings before tax (EBT) is used to look at cash flows after expenses but before taxes. In a world without tax, this is what earnings would look like.

Taking advantage of an advantageous tax-event, or hiring a better CPA, or merging with a company that can reduce the tax implications of some regular transactions, can bring earnings closer to their before-tax amount. Earnings before tax from an accounting standpoint is net income (which is another word for earnings) with taxes added together with it.

EBT helps investors and the company see how healthy the cash flows are, and how earnings sizes-up when compared to debt obligations and so on. There are a few computations that are closely related and used just as often: Earnings Before Interest and Taxes (EBIT) and Earnings Before Interest Taxes Depreciation and Amortization (EBITDA).

Interest refers to interest due on debt, depreciation is of course the reduction of value in hard assets annually, and amortization refers to the amortized principal payments due on debt. Net income (earnings) will be added together with any of the other factors that an accountant or analyst wants.

By taking things apart and putting them back together, a company can reverse-engineer a more successful strategy. Corporations tend to have an effective tax rate right around 34%, so rough estimates for EBT are not hard to do.