Financial Accounting for Managerial Decision Making

FINANCIAL ACCOUNTING FOR
MANAGERIAL DECISION MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(1).....................................................................................................................................................1
(2) Usefulness of EBITDA for financial analysis............................................................................2
(3).....................................................................................................................................................3
(a) Evaluation of statement “The new revenue recognition standard requires companies to
break down their activities into obligations and this drives the recognition model”..................3
(b) Evaluation of statement “Depreciation, applied systematically, produces an accurate asset
valuation”....................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4
APPENDIX....................................................................................................................................................5
Table 1EBIT margin........................................................................................................................5
Table 2EBITDA margin..................................................................................................................5

INTRODUCTION
Investment matter a lot for any company whether it is made in any company or financial
security. Before making investment in any company it is very important to consider number of
factors. Hence, majority of investors make use of EBIT and EBITDA for investment valuation.
In the present research study, EBIT and EBITDA ratio of GSK are computed and their results are
interpreted. Apart from this, detail discussion is carried out on earnings before interest and tax
and earning before interest, tax, depreciation and amortization. In middle part of the report
statement that were given by the experts in the conference are evaluated and comments are made
on same. At end conclusion is prepared and, in this way, entire research work is carried out
(1)
EBIT and EBITDAEBIT stands for the earnings before income and tax and EBITDA stands
for earnings before income and tax as well as depreciation. EBIT is also known as operating
profit of the business which is computed by subtracting all operating expenses from the gross
profit. Operating expenses are those expenses are those expenses which are made on daily basis
as usual by the business firm. EBIT or earnings before interest and tax have due importance for
the firm because it reflects extent to which firm have control on its direct and indirect expenses
in the business (Bouwens, De Kok and Verriest., 2019. If earnings before interest and tax are
low then it means that firm is not able to control its expense or its business reach at saturation
point and due to this reason revenue is low in the business. In such kind of situation investment
must not be made in any company. This is because if earning before interest and tax is already
low then in that case due to tax payment and interest payments profit will reduce further which is
not good for the firm. Hence, firm with low earning before intertest and tax are not considered
good from the investment point of view. On other hand, there is another term EBITDA which is
also very common and have due importance for the firm. In calculation of earnings before
interest, tax and depreciation interest, tax and depreciation are taken into account in order to
compute earning amount (Rodano and Sette, 2019). There is difference between earning before
interest and tax (EBIT) and earnings before interest and tax as well as depreciation (EBITDA). In
calculation of EBIT only interest and tax amount are taken in to account but in case of EBITDA
both interest, tax and depreciation amount is considered. Thus, it can be said that earnings before
interest, tax and depreciation as well as amortization give broader picture of earning then
1