Question

Please answer the following questions thoroughly in your own words.(500 Words)

• Why is earnings per share called “the bottom line”?

• What is EBIT, or operating income?

• What is EBITDA? Which is more like a snapshot of the firm’s operations—the balance sheet or the income statement? Explain your answer.

Answer 1

It is the net income reported at the end of the income statement of the business. It has a general format and, although there are multiple variations of layouts.

The EPS means EARNING PER SHARE, that can be calculated from the Net income from the income statement. The total income that is divided by the total number of outstanding shares, that is the EPS

Whenever the EPS increases the market value also increases

Ebit

EBIT means the earning of the company before interest and tax. The interest and the tax are the major expenses of the company. Other than that there are several expenses and income. By those income and expenses the profit or loss is calculated. But during that time the tax and interest is not considered for the calculation of the profit.

The EBIT can be calculated by,

EBIT = NET INCOME + TAX + INTEREST

EBITDA

EBITDA means the Earnings Before Interest, Taxes, Depreciation, and Amortization. It is the measure of the company's overall financial performance

As like EBIT, EBITDA it is the income which is not adjusted the expenses like, Interest, Taxes, Depreciation, and Amortization.

The Balance Sheet is more like a snapshot of the firm’s operations

Because the EPS is found by using the net income. O find the values of the firm net income, EBT, EBIT etc are used