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Home Report Errors Earnings before tax error in updated valuation spreadsheet

Earnings before tax error in updated valuation spreadsheet
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9:01 pm
April 18, 2011


Jae Jun

Admin

posts 1453
4

Yes you are correct. I see which cell you are referring to now.

I should have subtracted instead of added. Fixing it on my end right now.

8:12 am
April 16, 2011


jbt6561

Member

posts 4
3

I agree with you that the calcuation should be EBT + interest = EBIT, however the formula in the spreadsheet appears to be written in the opposite manner : Operating Income + Interest = EBT

I am looking at the Statements tab.  So for example i am looking at ticker SVU, and operating income for 2010 in cell N23 is $1,201.0 and the company incurred interest expense of $576.0 (cell N26), but Earnings Before Tax in cell N28 is $1,777.0.  Generally speaking for a company that incurs interest expense, EBT should be lower than operating income, not higher.

I believe the error is in cell N28 which is written as =N23+N26+N27. 

Effectively this formula in cell N28 is saying the following:

Operating Income + Interest Expense + Other Income = Earnings Before Tax.

However Interest expense should be subtracted from operating income in calculating EBT, so i think the formula should be rewritten to say:

Operating Icome – Interest expense + Other income = Earnings Before Tax 

 

1:49 pm
April 15, 2011


Jae Jun

Admin

posts 1453
2

which section of the spreadsheet are you referring to?

The calculation I used was EBT + Interest = EBIT

6:13 pm
April 13, 2011


jbt6561

Member

posts 4
1

i think there is an error in the newly revised valuation spreadsheet.  Earnings before tax is being cacluated by adding interest expense to operating income, but iit should be subtracted.  This overstates both earnings before and after taxes…
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