EBITDA
Also called: earnings before interest tax depreciation and amortisation
What is EBITDA?
EBITDA is earnings before interest, tax, depreciation and amortisation. It strips out financing and accounting choices to show what the underlying operation earns, which is why buyers and lenders lean on it.
Why EBITDA matters
EBITDA makes two businesses comparable when one is leased and financed and the other is owned outright. It is also the usual basis for valuation multiples in a sale or fundraise.
EBITDA formula
EBITDA = Net profit + Interest + Tax + Depreciation + Amortisation
Equivalently: operating profit plus depreciation and amortisation.
How EBITDA works in practice
Read it as an operating measure, not as cash. It ignores loan repayments and the very real cost of replacing equipment, so a business with strong EBITDA and heavy debt can still run out of money.
Frequently asked questions
No. It excludes working capital movements, loan principal and capital spending, all of which consume cash.