Earnings before interest and taxes (BAII)

accounting

The BAIT or BAII is an accounting indicator of the profitability of a company that is calculated as income minus expenses, excluding expenses, taxes and interests that the company has to pay.

The BAII or BAIT is also known as operating income or EBIT (for its acronym in English, Earnings Before Interest and Taxes).

BAII = Revenues - Cost of goods sold - Operating expenses

It is a ratio widely used in financial analysis because it is very easy to compare between companies and by not including taxes or interest, it avoids the discrepancies that arise between the different forms of capital and tax rates that companies pay. It is used to perform the Dupont analysis and calculate the ROE, among other ratios.

THE BAII in the income statement

The BAII is equal to the net result of a company if we add taxes and interest. It is the precursor to EBITDA, which includes the depreciation of company assets. Profit before interest and taxes is located just below EBITDA in the income statement.

Income statement Example
Net income or sales100
- Direct costs of the goods sold-50
Gross margin50
- General, personnel and administrative expenses-20
EBITDA30
- Amortization expenses and provisions-5
Earnings before interest and taxes (BAII) or EBIT25
+ Extraordinary income1
- Extraordinary expenses-2
Ordinary profit24
+ Financial income2
- Financial expenses-3
Profit Before Tax (BAI) or EBT23
- Corporation tax7
NET PROFIT OR RESULT OF THE YEAR16

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