Gross profit

Companies must generate a gross profit that is healthy enough to cover indirect expenses, taxes, cost of financing. But how much is enough will be unique to each industry and company to company. To analyze the gross profit of a company, we have to compare the ratio of Gross profit with its competitors in a similar industry, and also compare the ratio for the previous 5 years.

Comparing the figures with their peers will give an idea about its competitiveness is and comparing the ratios for the previous years, will point to the direction the company is moving.

Operating profit or EBIT

Gross profit less than the operating expenses will result in operating profit. Another term for operating profit is earnings before interest and tax - EBIT or Profit before Interest and taxes - PBIT. Profit is calculated before interest and taxes are deducted. This is done because operating profit is the profit earned by a business earns from its operations. Expense on interest will depend on whether they have taken a loan and taxes have no bearing on how well the company is run. The EBIT is shown in the income statement of a company.

EBT- Earnings before taxes.

The term Earnings before taxes EBT or Profit before Tax (PBT) implies that operating profit is shown after deducting interest expense.

PAT/EAT

Going to the bottom line - Net profit is also termed as Profit after tax (PAT) / or Earnings after tax (EAT)]. PAT is a profit that is left after every kind of expense namely direct expenses, indirect expenses, interest, and taxes is subtracted. When we see a statement “the bottom line of the company has witnessed considerable growth” it means that the PAT of the company has gone up. Some of the key ratios used for fundamental analysis of a company such as EPS or Earning Per share and PE Price-earnings ratio, rely on PAT.

To analyze the PAT of a company, one has to do the same thing as in Gross profit analysis. We have to compare the PBT ratio with its competitors in a similar industry, and also compare the ratio for the previous 5 years.

Comparing the figures with their peers will give an idea about its competitiveness is and comparing the ratios for the previous years, will point to the direction the company is moving.

EBDITA

EBITA (Earnings before depreciation, interest, taxes, and amortization) is another important version of profit. (Amortization is a non-cash expenditure.)