What is “EBITDA” meaning?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric used to evaluate a company’s operating performance by focusing on its core business operations without the effects of capital structure, tax rates, and non-cash accounting items like depreciation and amortization.

EBITDA gives a clearer picture of profitability by excluding expenses that might distort the operating performance.

Example

“The company reported an EBITDA of $10 million, indicating strong core business performance despite fluctuating interest rates.”

How is “EBITDA” used in business?

EBITDA is commonly used to compare profitability between companies in the same industry, regardless of differences in tax laws or capital structures. Investors and analysts often use EBITDA to assess the operating efficiency of a company and to compare its profitability with competitors or industry averages.

Pro Tip

EBITDA can be used to estimate a company’s cash flow, but it’s important to remember it doesn’t include capital expenditures or working capital changes, which can affect cash availability.

Related Terms

Operating Profit, Net Income, Free Cash Flow, Profit Margin