How this calculator works
Earnings before tax is the profit left after every operating and financing cost except income tax. The path usually runs from revenue through cost of goods sold to gross profit, then through operating expenses such as selling, general and administrative costs and depreciation to operating income, then through interest expense and other income to earnings before tax. Other income can include interest earned, gains on investments or foreign exchange. Because tax is the last line, EBT is the number that tax rules apply to, subject to adjustments such as non-deductible expenses or tax credits.
Formula
Earnings before tax = revenue - cost of goods sold - operating expenses - interest expense + other income. Gross profit = revenue - cost of goods sold. Operating income = gross profit - operating expenses.
Worked example
Revenue of $1,000,000, cost of goods sold of $600,000, operating expenses of $200,000, interest expense of $30,000 and other income of $10,000 give earnings before tax of $180,000. Gross profit is $400,000 and operating income is $200,000.
Advertisement
Frequently asked questions
Is EBT the same as pre-tax income?
Yes. EBT, pre-tax income and profit before tax all refer to the line above the income tax expense. Some statements call it income before income taxes. The figures are the same as long as no discontinued operations sit below it.
How does EBT relate to EBIT?
EBIT is EBT before interest and other financing items. In the simple structure used here, EBIT equals revenue minus cost of goods sold minus operating expenses, and EBT equals EBIT minus interest plus other income.
Why add other income instead of subtracting it?
Other income is a gain, so it increases profit. Enter a negative number in the other income field if it is actually an expense, and the formula then deducts it.