Accounting for Business Terms with "E"

Glossary of Accounting for Business - Glossario Contabilità Imprese

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EAR: stands for Effective Annual Rate. Please see What is AER, APR, EAR Interest for detailed information.

EBITDA: stands for "Earnings before Interest, Taxes, Depreciation, and Amortization". When companies publish their financial statements, the most important metric for investors is the company's income, which is calculated as the company's revenue minus all its expenses. Some companies also publish their EBITDA, which, these companies usually claim, provides a more true picture of the company's profitability than the "income" number. There are several 'Earnings Before..' ratios and acronyms:

  • EBT = Earnings Before Taxes;

  • EBIT = Earnings Before Interest and Taxes;

  • EBIAT = Earnings Before Interest after Taxes;

  • EBITD = Earnings Before Interest, Taxes and Depreciation; and

  • EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.

Earnings are operating and non-operating profits (eg interest, dividends received from other investments). Depreciation is the non-cash charge to the balance sheet which is made in writing off an asset over a period. Amortisation is the payment of a loan in instalments.

Economic Order Quantity (EOQ): a calculation stating the amount of stock that should be ordered at a time, and how frequently to order it, so that the overall total of the costs of holding the stock and the costs of ordering the stock can be minimised.

Equity: the net assets of a company after all creditors have been paid off.

Expenses: expenses are those items that the company buys which do not go to actually create that company’s product or service eg. stationery, petrol, promotional goods.