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Sophomore-Junior Diagnostic Project
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Two surrogates for earnings that are commonly used in rate of return ratios are earnings before interest and tax (EBIT); and earnings before interest, tax, depreciation and amortization (EBITDA). They are calculated as follows:
EBIT: Net income EBITDA: Net income + Interest expense + Interest expense + Income tax expense + Income tax expense = EBIT + Depreciation expense + Amortization expense = EBITDA
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