But Which Profit Level?
There are a number of profit levels available that can be calculated from financial reports. These are generally described as:
- Gross Profit;
- Proprietor’s Profit Before Interest and Taxation (often referred to as PEBIT);
- Proprietor’s Profit Before Interest, Taxation, Depreciation and Amortisation (often referred to as
- Earnings (Profit) Before Interest and Taxation (often referred to as EBIT)
- Earnings (Profit) Before Interest, Taxation, depreciation and Amortisation (often referred to as
- Profit Before Taxation;
- Profit After Taxation.
The answer is the best level with which to compare similar businesses. Proprietor operated businesses will generally use PEBITDA. Larger businesses with management in place usually opt for EBIT or EBITDA.
It is critical for you to decide which profit level you are going to use. Get it wrong and you can totally miss the opportunity present before you.
Finally; the assessment of the total funds you need to invest in the business to operate it normally. This will generally include stock, work in progress and working capital.
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