Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
What is EBITDA?
EBITDA is a metric used to measure the operating performance of a company. In some cases, it is used as an alternative to gross profit or net income because it shows a clear picture of a company’s earnings without factoring in taxes or other accounting-related estimates.
EBITDA represents profit before:
- Interest - expenses caused by interest rates
- Taxes - expenses caused by tax rates
- Depreciation & Amortization - non-cash expenses related to the gradual decrease in the value of tangible and intangible assets of a company over time
Why is EBITDA important?
EBITDA helps compare profitability between companies and industries by eliminating the impacts of financial, accounting, and governmental factors. It gives a clear picture of a company's income.
How is EBITDA calculated?
EBITDA is calculated by taking Total Revenue and subtracting Costs of Goods Sold, Selling, General & Administrative Expenses, Other Operating Expenses, and then adding Depreciation & Amortization.
Why is there no EBITDA for some companies?
If a company is classified as Insurance or Bank, EBITDA will not be available due to its calculation methodology. These companies will not have Costs of Goods Sold, Selling, and General & Administrative Expenses, which are needed in the calculation.