EBIT is an indicator of a company’s profitability, calculated as revenue minus expenses, excluding interest and tax.
EBIT measures the profit a company generates from its operations, for that reason is also called “Operating profit”. By excluding tax and interest (expenses and income), we focus solely on the company’s ability to generate earnings from operations, ignoring variables such as tax expenses and financial assets.
Financing – decisions and operational policies by which companies raise the necessary resources to support and develop the business, can seriously jeopardize the very survival of the company. Keep tabs on the amount of debt, especially in relation to the ability to bear the cost and to raise in the course of time the resources to repay lenders, is a top priority for any finance manager.
Discounting of cash-flows is a financial process that computes the value today of a stream that you will generate in the future. At constant value, a cash-flow projected into the future is worth less than a cash-flow today for two reasons:
1. we prefer to consume today rather than tomorrow. In order to ensure that a certain individual does not consume a certain good today, we have to grant him that in the future he will have the possibility of consuming larger, the real rate of return;
2. in calculating cash-flows that we expect will be generated in the future, we must take into account some degree of risk or uncertainty which consequently reduces the value in proportion to time estimates.
The purpose of this article is to identify a model of cash flow statement that can be conveniently used for a correct financial analysis, based on the calculation of NOPAT (Net Operating Profit After Taxes).
For an audit of the company’s performance from a financial point of view, it is essential to provide for the construction of the financial statement which is an account that highlights the causes of change, positive or negative, of cash occurred in a given year, as set forth by IAS 1.