What is EBITDA?
EBITDA, or Earnings before Interest, Taxes, Depreciation, and Amortization, is a different measure of profitability than net income. EBITDA, which includes depreciation and amortization as well as taxes and debt service expenses, seeks to depict the cash profit created by the company’s activities. EBITDA is not a GAAP-recognized number. Some public firms provide EBITDA in their quarterly results as well as adjusted EBITDA statistics, which often exclude extra expenditures such as stock-based compensation. The increased emphasis on EBITDA by firms and investors has sparked criticism that it overstates profitability.
Geeky Takeaways:
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a metric measuring fundamental business performance.
- To calculate EBITDA, add interest, tax, depreciation, and amortization expenditures to net income.
- EBITDA has been used as an important metric by shareholders and investors to make business decisions.
- Some critics, notably Warren Buffett, believe EBITDA is meaningless since it excludes depreciation and capital expenditures.
Table of Content
- Why EBITDA?
- EBITDA Formulas
- Example of EBITDA
- History of EBITDA
- Benefits of EBITDA
- Criticisms of EBITDA
- EBITDA vs. EBIT vs. EBT
- EBITDA vs. Operating Cash Flow
- EBITDA – FAQs
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