Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA

Filed Under » , , , , , ,
Dictionary Says

Definition of 'Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA'

An indicator of a company's financial performance which is calculated in the following EBITDA calculation:

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)


EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.
Investopedia Says

Investopedia explains 'Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA'

This is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.

EBITDA first came into common use with leveraged buyouts in the 1980s, when it was used to indicate the ability of a company to service debt. As time passed, it became popular in industries with expensive assets that had to be written down over long periods of time. EBITDA is now commonly quoted by many companies, especially in the tech sector - even when it isn't warranted.

A common misconception is that EBITDA represents cash earnings. EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings. When using this metric, it's key that investors also focus on other performance measures to make sure the company is not trying to hide something with EBITDA.

Understand th EBITDA with practical examples by reading A Clear Look at EBITDA and EBITDA: Challenging the Calculation

Related Video for 'Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA'

Articles Of Interest

  1.

    EBITDA

    Otherwise known as Earnings Before Interest, Taxes, Depreciation and Amortization. Learn more about this indicator of a company's financial performance.

  2. Valuing Startup Ventures

    Valuing a company is a difficult task, regardless of the size of the business - but these methods can help.

  3. Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.

  4. A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.

  5. EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.

  6. What's the difference between EBITDA, EBITDAR and EBITDARM?

    EBITDA, EBITDAR and EBITDARM are analytic indicators commonly used by management to evaluate the financial performance and resource allocation for operating units within a company. These tools ...

  7. What is the difference between IAS and GAAP?

    To answer this question, we must first define what IAS and GAAP are, in order to get a better grasp of the function they serve in the world of accounting.The acronym "IAS" stands for International ...

  8. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally expensed based on the time period over which the asset was ...

  9. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  10. Explaining Amortization In The Balance Sheet

    Amortization is important to account for intangible assets. Read to find out more about amortization.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center