Why EBITDA?
1. Management: EBITDA measures how successfully a firm manages its day-to-day operations, including key costs like the cost of goods sold. As such, it provides a fairly accurate picture of a company’s current health and prospects. In certain circumstances, it is more equitable than gross profit or net income.
2. Profitability: EBITDA is arrived by including interest, taxes, depreciation, and amortization to net income. EBITDA may be used to analyze and evaluate organizations’ underlying profitability, regardless of depreciation assumptions or financing options.
3. Ratios: EBITDA, like earnings, is commonly used in valuation ratios, especially when paired with enterprise value as EV/EBITDA, also known as the enterprise multiple.
4. Study of Assets: EBITDA is commonly employed in the study of asset-intensive industries with a large amount of property, plant, and equipment and substantial non-cash depreciation expenses.
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