Master Your Finances: A Step-by-Step Guide to Creating a Budget That Works for Beginners Creating a budget might seem daunting, but it's one of the most empowering financial decisions you can make. Whether you're looking to save for a major goal, manage debt, or simply gain control of your finances, a well-structured budget is your roadmap to success. In this guide, we'll break down the process into simple steps tailored for beginners. Let's get started! Step 1: Assess Your Financial Situation Before you can create a budget, you need to understand your financial standing. Gather all relevant information, such as: Monthly income: Include your salary, freelance income, or other sources of earnings. Expenses: Track all expenses, including rent, groceries, transportation, and discretionary spending. Debt: Note down credit card balances, student loans, or other obligations. Savings: Review your emergency fund and other savings accounts. Pro Tip: Use budgeting apps like M...
Measuring Business’ Profitability Without Seeing Net Profit
Earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings before interest and taxes (EBIT).
EBIT, EBITDA and operating profit are forms of profit of a company before considering interest and taxes paid and writing off depreciation and amortization (only in the case of EBITDA) showing the core performance of the company.
Where is it shown?
There are 3 financial statements –
• Profit & loss statement
• Balance sheet
• Cash flow statement
It is shown in the profit & loss statement.
For example-
Operating profit = EBIT- (non-operating profit)
Important terms to know.
· Amortization-writing off the value of intangible assets such as goodwill or patents over a set period. It is an operating expense.
· Operating expenses are expenses incurred by a business in its normal course. For eg-administration.
· Non-operating profit-profit derived from non-core activities of a company such as a sale of an asset.
Taxes and interest are non-operating expenses whereas depreciation is an operating expense.
Importance of EBIT and EBITDA
· EBIT and EBITDA are used to compare companies on their operations -which is best at its core business operations.
· Usage of EBIT comes into play in the case of services industries (technology, professional services, etc.) as they are much less affected by depreciation.
· Usage of EBITDA comes into play in the case of capital-intensive countries. Eg-manufacturing-oil & gas, telecom, etc.
EBITDA and EBIT margins depend on industry and sector.
Comments
Post a Comment