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EBT margin

EBT margin

Description

EBT margin shows company’s earnings before tax as a percentage of net sales (revenues). This ratio is very close to the net income margin as it also shows “bottom line” profit, except for the fact that the deducted income taxes are not excluded, and that’s why this ratio is sometimes called pretax profit margin. Data to calculate this ratio is collected from the income statement.

Norms and limitations

Different industry has different norms for this ratio.

As we have already mentioned, slight changes of this ratio indicate stable activity of the company. It is important to observe the ratio decrease trend, because, as an example, it may mean a bigger competition and a risk of company’s bankruptcy (especially if the value of the ratio became negative).

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