During earnings season, there’s a lot to get your head around. Let us give ya a hand.
During earnings season, there’s a lot to get your head around.
You’ve got your EBITDA, your EBIT and your NPAT. That’s alongside revenue, cash profits, debts, and more financial terms nobody really understands.
Today’s lesson is about NPAT, which stands for Net Profits After Tax.
Say you own a sneaker store, and you’ve made $100,000 in the three months to 30 June.
This is called your revenue.
But, it costs you around $20,000 to actually make those sneakers. So your gross profits are actually only $80,000.
You remember you actually had to pay some operational costs like your rent and your employees’ wages. That cost around $40,000, so your net profit is actually $40,000.
This is the amount that you tell the tax office you earned, and it’s the amount that you’ll pay tax on. If the ATO charges 30% in taxes, your net profits after tax (NPAT) is $28,000.
This is the measure of how well a company has performed after you remove its expenses, debts and taxes = aka how well its cash is flowing.
Positive cash flow (when there’s more cash coming into the business than going out) is a good indication that a business is doing well, which makes investors want to invest in it.
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