operationg profit means PBIT / Profit after tax but before interest? pls explain
15 Replies
Nitika
(student)
(72 Points)
Replied 25 November 2011
operating profit=earning before intt & tax.(EBIT)
OPERATING PROFIT=OPERATING REVENUE-- OPERATING EXPENSES.
CA RICHA BADALIA
(CA,CS)
(1682 Points)
Replied 25 November 2011
Operating profit is profit earned from business operations after deducting operating expenses. EBIT(Earning Before Interest and Tax) is the operating profit of the company.
shwetha
(CWA learner)
(447 Points)
Replied 25 November 2011
well thq shivaram and nikitha. pls explain it indetail.my doubt is.....
in my CWA books it is given like this......
Contribution
Operating Leverage Ratio = ----------------------------------- x 100
PBIT / Operating profit
Net profit after tax but before interest
Return on total assets = -------------------------------------------------------- x 100
Total assets
(Note: Net operating profit after tax but before interest is nothing but Operating profit)
These two formulas are makes me confused that what exactly operating profit means. pls explain..........................
shwetha
(CWA learner)
(447 Points)
Replied 25 November 2011
thq so much in advance for ur patience in clearing doubts
Abhay Sakaria
([Practicing C.A.] [C.S. Final])
(283 Points)
Replied 25 November 2011
The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes.
Also known as "earnings before interest and tax" (EBIT).
Operating Profit = Operating Income – Operating Expenses (It includes only income from operations) (This is calculated before interst & tax, in addition to that interst is always is calculated before tax for calculating earnings for shareholders.)
For example, suppose ABC Printing Company earns Rs.50 Lacs from its core printing related operations, Rs.10 Lacs from its 40% stake in XYZ Corp. and Rs.3.5 Lacs from interest earned in its money market and bank accounts. In addition, the company spends Rs.10 Lacs in production related costs.
Overall, the company's operating profit is Rs.40 Lacs. This is calculated as the Rs.50 Lacs in operating revenue minus the Rs.10 Lacs in production costs. The other Rs.10 Lacs and Rs.3.5 Lacs in earnings are not included in operating income because they are investment income.
Nitika
(student)
(72 Points)
Replied 25 November 2011
I thik,if that note is given with qn &/or no tax rate is given only then we takes operating profit as profit after tax & before intt.
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 25 November 2011
Operating leverage =Contribution /EBIT
I think return on total assets means here Return on Investment
its Formula is EBIT/Total capital Employed
The problem is when You have to give segmentation to ROE(Return on Equity)
Return on Equity is Post Tax so You have to recompute the Return on Investment which is arrived by the above Formula which is Pre tax to make it Post Tax
Yatin Kinger
(Proprietor)
(49 Points)
Replied 25 November 2011
both formula's are same................if in question tax rate given thn take operating profit (EBIT(1-tax))..........if tax rate not given thn take simply EBIT...............
*RENU SINGH *
(✩ §m!ℓ!ñġ €ม€§ fℓม!ñġ ђ♪gђ✩ )
(21627 Points)
Replied 25 November 2011
| Originally posted by : sivaram | ||
 |
Operating leverage =Contribution /EBIT I think return on total assets means here Return on Investment its Formula is EBIT/Total capital Employed The problem is when You have to give segmentation to ROE(Return on Equity) Return on Equity is Post Tax so You have to recompute the Return on Investment which is arrived by the above Formula which is Pre tax to make it Post Tax |
 |
Agreee
Mary Asha
(Chartered Accountant)
(112 Points)
Replied 25 November 2011
Operating profit is always before interest,before dividends.. So,if problem states EAT then deduct interest to get back to the normal profit. I.e before interest paid.
Recent Topics
- GST registration -notice
- GSTIN Suspended Form GST Reg 17
- Request for GST Clarification regarding ITC
- Is Capital Gain exemption available for Property a
- EPF CONTRIBUION BY EMPLOYER
- Letter of credit -seller procedure
- Filling form 26 QB
- RPT AND ITC ISSUE
- Tax Liability and ITC Summary related Issues
- REQUIRED FORMAT FOR AMENDMENT TO PARTNERSHIP DEED
Related Threads
CAclubindia
