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What is Amortization?
Amortization is like giving a life span to a financial obligation, over a set number of years, and gradually killing-off the obligation with set payments. Amortization is the calculation of a fixed payment schedule over a set number of years to allow the repayment of a loan, such as a home mortgage. From an accounting standpoint, it can refer to the practice of spreading-out the cost of any intangible asset over time. For example, the IRS will allow a taxpayer to amortize the premium of a bond for deductions. Continue reading...
What is Accelerated Amortization?
Accelerated amortization is the recalculation of an amortization schedule, such as mortgage payments, after the borrower pays off some of the debt ahead of schedule. Amortization describes the accounting practice of giving a one-time expense a retirement schedule or payment plan by which it is to be either deducted for tax purposes, repaid, or paid out. Accelerated amortizations allow for more payments or deductions in the early years rather than later years. Continue reading...
What is Earnings Before Interest Depreciation and Amortization (EBIDA)?
EBIDA is one of the family of earnings metrics which give the analyst, investor, or accountant an opportunity to view earnings, which is synonymous with net income, with a few factors added back into it. In this case, interest payments on debt, depreciation of hard assets on the standard IRS schedules, and amortization of principal debts are all added back into the earnings of the company for the current period. Not to be confused with EBITDA, its more popular counterpart. Continue reading...
What are Accounting Methods?
Accounting Methods are the overarching style of accounting and bookkeeping which determine the practices, procedures, systems, and controls which should be put in place. There are two main methods of accounting that businesses and individuals can use to approach their accounting, and these are known as cash basis and accrual basis. The IRS expects businesses to choose early one which method they will use, and it can be difficult to change accounting styles later on. Continue reading...
How Do You Understand an Amortization Schedule? A Comprehensive Guide
Amortization, at its core, is an accounting technique with dual applications. It aids in either gradually decreasing the value of an intangible asset or systematically reducing the balance of a loan through regular payments. Whether it’s applied to intangible assets or loans, the essence remains the same - distributing a large cost over multiple periods to ensure better financial management. Continue reading...
What is EBITA and Why is it Important for Investors?
Navigate the complex world of financial metrics with a deep dive into EBITA. This guide elucidates the essence of Earnings Before Interest, Taxes, and Amortization, offering insights into its applications and distinctions from EBITDA. By stripping away taxes, interest, and amortization, EBITA provides a clearer view of a company's core profitability. But how does it stand against standardized GAAP earnings? And where does it fit in the broader landscape of financial analysis? Equip yourself with the knowledge of EBITA and its role in the financial world, ensuring a more informed approach to investment decisions. Continue reading...
What is Earnings Before Interest, Taxes ,and Depreciation (EBITD)?
Earnings Before Interest, Taxes, and Depreciation (EBITD) is one method of viewing the earnings of a company with some of the typical expenses added back into it. It is not to be confused with its close cousin EBITDA, which also adds amortization back in. Amortization is essentially the same thing as depreciation, but amortization applies to intangibles such as debt principal amounts and intellectual property. Continue reading...
What Is EBITDA?
This acronym, short for Earnings Before Interest, Taxes, Depreciation, and Amortization, has become a key metric used by investors and analysts to gauge a company's financial performance. In this article, we'll delve into the meaning of EBITDA, its formula, and its historical origins. Continue reading...
What is Adjusted EBITDA?
Basically synonymous with Normalized EBITDA, Adjusted EBITDA is a non-GAAP method of making earnings valuations a little more standardized between companies. Adjusted Earnings is a valuation that has many moving parts in the form of the interest, taxes, depreciation and amortization that might be included there, in addition to the non-GAAP nature of the methods. EBITDA removes all of those moving parts and looks at the Earnings before any of the other arithmetic interferes, hence the name Earnings Before Interest, Taxes, Depreciation, and Amortization. Continue reading...
What is Earnings Before Tax (EBT)?
Earnings before tax (EBT) is used to look at cash flows after expenses but before taxes. In a world without tax, this is what earnings would look like. Taking advantage of an advantageous tax-event, or hiring a better CPA, or merging with a company that can reduce the tax implications of some regular transactions, can bring earnings closer to their before-tax amount. Earnings before tax from an accounting standpoint is net income (which is another word for earnings) with taxes added together with it. Continue reading...
What Is EBITDA Margin?
In the complex world of finance, metrics like EBITDA Margin provide a straightforward way to assess a company's profitability. EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a powerful tool for understanding how efficiently a company generates profits from its core operations. Let's delve into what EBITDA Margin is, how it's calculated, its advantages, and its drawbacks. EBITDA Margin is a performance metric that focuses on the core financial health of a business by eliminating non-operating expenses. Continue reading...
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization, and is used as a ballpark figure for where the company’s earnings are without these expenses. It gives a picture of the total operating revenue of a company with the expenses that are related to financing decision and the tax environment left out. Accountants can calculate EBITDA by taking net income (earnings, or operational earnings) and adding interest payments, tax obligation, depreciation of hard assets, and amortization of intangibles back into it. Continue reading...
What is a Non-Current Asset?
A non-current asset is an asset on the balance sheet that is not expected to convert into unrestricted cash within a year’s time. Non-current assets may include such things as intellectual property and production/operations equipment - meaning they likely do not have a need to convert to cash. From a balance sheet standpoint, non-current assets are capitalized rather than expensed - meaning the company can allocate the asset’s cost of the asset over the number of years for which the asset will be used, instead of allocating it all in the year it was purchased. Continue reading...
What is a Balloon Loan?
A Balloon Loan has lower debt payments than a fully amortized loan up until a lump sum payment at the end of a term. Balloon loans have relatively low monthly payments due over their term and then a large lump sum payment for the remaining balance at the end. This can be advantageous if someone or a business knows they will be paid in a certain way that fits well with this schedule. Other people and businesses may be planning to use a more flexible approach where the lump sum due at the end is rolled into a new financing schedule (such as a two-step mortgage), and this is usually done if there is a reset provision in the contract. Continue reading...
What is Cash Flow After Taxes?
Cash flow after taxes (CFAT) is nearly the same thing as EBITDA, but with taxes left in. One way to arrive at Cash Flow After Taxes is to take the net income of the business and add in interest, amortization, depreciation and other non-cash expenses. This is one item away from the formula for EBITDA, which also adds tax back in to arrive at the Earnings Before Interest, Taxes, Depreciation and Amortization. Continue reading...
What are Accounting Policies?
Accounting policies are the internal controls of a company which stipulate the methods by which the books will be kept. Accounting policies are the agreed-upon accounting methods, conventions, and practices of an accounting cycle. A business must establish guidelines and training to ensure that accounts are kept in ways that satisfy their needs for documentation, security, liquidity, management, and the observation of applicable laws. Continue reading...
Does IRS Rule 72(t) Provide a Way to Take Early 401(k) Withdrawals Without Penalty?
Rule 72(t) allows the owner of a 401(k) or IRA account to take “substantially equal periodic payments” from an account without owing the 10% early withdrawal penalty. Taking money out of a401(k) or IRA before age 59½ will generally cause someone to owe a 10% early withdrawal penalty. One of the ways this penalty can be avoided, however, is if the participant uses 72(t) distributions. IRS rule 72(t) is the section of the code that describes early withdrawal penalties, but it also allows “substantially equal periodic payments” to be taken from a 401(k) or IRA without owing the 10% penalty. Continue reading...
What is the Equity Multiplier?
The Equity Multiplier is a number used to compare companies, arrived at by dividing total assets by owner’s equity, and it gives an idea of what proportion of the company’s assets have been financed through equity vs debt. In general a low Equity Multiplier is a good sign because it means that a higher proportion of equity has been used to acquire assets, as opposed to funding assets with debt. However, the absence of significant debt could mean that the company lacked the credit rating to issue debt or take out loans. Continue reading...
What is a Balloon Payment?
A balloon payment is a lump sum due at the end of a balloon loan term. In a balloon loan arrangement, the payment schedule does not amortize the entire amount of the loan, but instead allows for lower installment payments by holding a lump-sum payment until the end of the term. These terms are usually relatively short, such as 5 years, and often these arrangements are taken by individuals or consumers who plan on refinancing before the balloon payment comes due. Continue reading...
What are Corporate Earnings?
Earnings are the net revenue of a company after expenses and, sometimes, taxes. Also known as profit. Corporate earnings are an important metric for individual companies and the economy as a whole, because it shows how much money has been made. Revenue is the inflow of money to a company, and earnings are the net revenue, or profit, after expenses have been taken out. Of course there is also EBITDA, which is Earnings Before Interest Taxes Depreciation and Amortization, but this is a non-GAAP method. Earnings are usually calculated on a quarterly basis. Continue reading...