Measures of accounting profit
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Companies make use of several different measures of profit, and each company will have its own preference. It is important to understand this preference, because as the well-known adage goes, ‘you get what you measure’. This is especially the case when bonuses are contingent on achieving a particular year end profit target. Commonly used profit measures include:
- EBITDA – earnings before interest, tax, depreciation, amortisation of goodwill, sometimes known as gross cash profits
- EBIT (or PBIT) – earnings (or profit) before interest and tax
- EBT (or PBT) – earnings (or profit) before tax
- Earnings – profit after tax
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