Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a financial metric used to evaluate the operating performance of a company. It is a measure of a company’s financial performance that excludes the impact of financing, taxes, depreciation, and amortization expenses.
EBITDA represents a company’s operating profit before accounting for these non-operating expenses, and is often used as a quick and easy indicator of a company’s financial health. By excluding these non-operating expenses, EBITDA provides a clearer picture of a company’s operational profitability.
EBITDA can be calculated as follows:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
For example, if a company has a net income of $10 million, interest expenses of $2 million, taxes of $3 million, depreciation of $4 million, and amortization of $5 million, its EBITDA would be calculated as follows:
EBITDA = $10 million + $2 million + $3 million + $4 million + $5 million = $24 million
So, the company would have an EBITDA of $24 million.
Note that EBITDA is not a recognized measure of financial performance under generally accepted accounting principles (GAAP), but it is widely used as a financial metric in industries such as technology, telecommunications, and entertainment, among others.
