标题: Schweser Notes, Book 3, R39, p121 [打印本页] 作者: studyn 时间: 2013-4-12 23:18 标题: Schweser Notes, Book 3, R39, p121
Hey peeps,
I thought interest, dep and amortization are all tax-deductible. However, in the calculation of both Nominal and Real taxes, the base used is Nominal and Real EBITA, respectively. Shouldn’t the base for taxes be EBT? What gives?
Thanks.作者: JRossSter 时间: 2013-4-12 23:18
The concept here is to arrive at NOPLAT - Net Operating Profit Less Applicable Taxes.
NOPLAT = EBITA - Taxes…
has been defined on Pg. 118 at the top for you.作者: Mechanic 时间: 2013-4-12 23:18
Umm..I get that but my question is shouldn’t taxes be equal to Taxes = Tax Rate x EBT, and not Tax Rate x EBITA as it’s done in the example. As far as I know interest and amortization should be deducted from earnings to arrive at taxable income. Am I mistaken here? Thanks.作者: bluejazzy 时间: 2013-4-12 23:18
I did this reading day before yesterday, but did not think thru this and took the material for its face value. Good you pointed it out.
Now, thinking on it, this is how I have explained it to myself for now:
1. Operating Profits only include profits generated by Operating Assets (that is Working Capital and PP&E) and DOES NOT include any profits from use of any Intabgible Assets (e.g. Goodwill). This is the reason why any Amortizations as expenses are ignored in Operating Profits calculation.
2. Operating Profits are also independent of a firm’s Capital Structure. That is, it does not care how you have financed your Operating Assets. So, any Interest Expenses on any Debt financing are kept out of Operating Profits.
3. Because, expenses on Interest and Amortizations are ignored completely, the base for taxes FOR CALCULATION OF OPERATING PROFITS is EBITA and not EBT. Meaning, tax estimation is higher for NOPLAT calculation, as it assumes that Company is having no Interest Bearing Debt and no Non-Operating Assets (like goodwill).
Hope this gives you something to think further. Maybe someone can help explain it better.
