Pearson brothers recently reported an ebitda of $7.5 million and net
Depreciation and amortization are important components of the income statement, in that they both represent non-cash expenses. Depreciation is an expense associated with the wear and tear on fixed assets such as buildings, equipment, furniture, and automobiles. Amortization is an expense associated with intangible assets acquired through business activities (such as trademarks or goodwill).
In order to calculate Pearson Brothers’ charge for depreciation and amortization we must first calculate their EBIT (earnings before interest & taxes). In this case, EBIT equals EBITDA minus depreciation & amortization:
EBIT = $7.5 Million – $X
We then use the following equation to determine X:
Taxable Income + Interest Expense – Depreciation & Amortization = Net Income
$1.8 Million + $2.0 Million – X = $1.8 Million
This results in a value for X of $4.6 million which represents Pearson Brothers’ charge for depreciation and amortization during the given period therefore it can be concluded that Pearson Brothers had a total charge for depreciation & amortization of 4.6 million dollars during this period