(S-C-D) x (1-t) + D EBIT, EBITDA, after tax operating earnings

CFA Level II Corporate Finance
#1

Hi everyone,

I am confused between EBIT, EBITDA, and After tax operating earning as inputs in the CF in capital budgeting.

My understanding is:

EBIT = (S-C) so since (S-C) x (1-t) +t x D then EBIT x (1-t) + t x D

EBITDA = (S-C-D) so since (S - C - D) x (1-t) +D then EBITDA x (1-t) + D

After tax operating income = (S - C - D) x (1-t) + D

Does this seem right to you ?

#2

Personally, i think it’s important to not really try to map these inputs to EBIT, etc, as the text doesn’t really work that way.

That said, EBIT is (not exactly, but more or less):

EBIT = (S-C-D) (since EBIT is after Deprecation, not before, that means it’s taken out already)

The last equation you have there is correct, except that it’s after-tax operating cash flow, not income. The distinction is important for capital budgeting purposes.

#3

Thanks