We are assuming a very simple world, were the is no taxes, we have no debt, we have no intrest or things

And let's say, assume if I inherited this million dollars, I didn't finance it.

And at least it'll give you a sense of how revenues, gross profit, operating profit, pre tax income and net income really are different.

And when people talk about earnings of a company, this is what they're talking about.

So you've probably heard not only the term earnings, you've probably also heard the term earnings per share.

They buy more of your service and they tell more of their friends, which leads to more profit.

But again, fun is not enough.

What's in it for the institution?

This is what the owners of the company get before they pay the government.

(Laughter) But I know it's the bottom line, or one's perception of it, that motivates people in the end.

And you'll hear these numbers, gross and operating profit and net profit and pretax profit, and it's very hard to understand that these are actually very, very different things, because they all have the word profit, and what does gross and operating and all that mean?

Then the companies or those factories or whatever you want to think of them,

We know how much it takes to build our product.

These are the only people who really have, arguably the sophistication and the time and the monetary incentive to really look and scrutinize what management is doing.

So EBlT, I kind of view that it goes backwards.

So it will benefit, because you are discounting some of the cash payments.

Kill the goose that lays the golden eggs.

And then if you subtract your costs from your revenue, or if you just add these two numbers, because this one is negative, you have your gross profit.

It's good for everybody.

No pain, no gain.

But here you see it means very, very different things.

And I won't go into all of the details of an income statement, but any income statement you look at will have this operating profit line.

And these metrics will tell you that.

This is really important to pay attention to, because so many people say, oh, a company made this much.

France will, of course, keep its military bases in Mali.

But this is the difference between operating income and EBlT.

Why isn't it on every poster across the third world?

So cash could be an asset.

But in general if you take EBlT and you take out the non operating income, you get back to operating profits.

It's a special interest group?

They have no interest expense, because that's not the point of this video.

So, let's see, you have to do 1.85.

Our interests clash with theirs.

So what they do is they just take your earnings number and you divide by the number of shares.

So that's what I'm paying for, arguably.

Minus 500,000.

You sold it 50, you borrowed and sold 50, then when it went down 20 you bought is back, you bought it back for 20

All they care about is profits.

Price to Earnings is 1.75 divided by 0.35, would now be a 5 Price to Earnings.

But very, very few people or organizations know why they do what they do.

Could lead to better investment. Could lead to more productivity.

No one wants it to go off.

The taxes will be 153,000.

With trade, there's mutual interdependency and mutual gain between parties.

And you might wonder, where does that come from?