Question

Please answer the following questions thoroughly in your own words.(600 Words) Why is earnings per share called "the bottom line"? What is EBIT, or operating income? What is EBITDA? Which is more like a snapshot of the firm's operations-the balance sheet or the income statement? Explain your answer.

Answer 1

first question-

earning per share  earning per share is the consequence of net profit after all expenses divided by the number of shares.

this is a single unit value which represents the net profit of a company.various strategies concerned with price determination,cost determination and policies are under taken on the basis of EPS.this is a fundamental basis for observation which represents the earlier impact of planning and is the ultimate profitability after the process of auditing.

second question-

EBIT(earning before interest and taxes)-

this is based on the difference between the revenue of the firm and expenses incurred in the operating process of business which ignores/eliminates the payment of interest on capital raised and taxation paid.EBIT presents the profit concerned with business therefore this is also known as operating profit.

EBITDA(earning before interest,tax,depreciation and amortization)-

• in this accounting treatment the calculation of interest,tax,depreciation and amortization is excluded.
• depreciation- this is charged on the fixed asset periodically and it reduces the value of fixed asset because of uses,wear and tear etc.
• amortization- this is charged on intangible assets like copyrights,patents,goodwill etc.

third question-

both the financial reports have their own specification-

1. INCOME STATEMENT- income statement provides information concerned with the expenditure and profit generated from the business.thus this is an important document which can be utilized to take short term decision.
2. BALANCE SHEET- balance sheet is a financial report which represent information which is helpful in long term decisions,it represents the asset,liabilities,borrowings and investments of the firm.

• we can say in short term financial planning income statement is important.
• in long run business investment and decision Balance sheet is more important.