Is EBITDA the same as profit?

No. EBITDA ignores interest, taxes, and the cost of using up assets (depreciation and amortization). It approximates operating cash generation but is not net profit.

Why do investors use EBITDA?

It strips out financing and accounting choices so you can compare the core operating performance of companies with different debt levels or tax situations.

Glossary term

EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It approximates a company's operating profitability before financing and accounting decisions.

Formula Operating profit + Depreciation + Amortization

EBITDA is one of the most quoted — and most misunderstood — numbers in company analysis. It stands for Earnings Before Interest, Taxes, Depreciation and Amortization.

What EBITDA measures

EBITDA tries to show how much profit a company’s core operations generate, before the effects of:

Interest — how the company is financed (debt vs equity),
Taxes — which vary by country and structure,
Depreciation & amortization — non-cash charges for using up assets over time.

By removing these, EBITDA lets you compare two businesses’ operating performance on a more level footing.

How to calculate EBITDA

Start from operating profit (EBIT) and add back depreciation and amortization:

If a company reports €120m operating profit and €30m of depreciation and amortization, EBITDA is €150m.

The catch

EBITDA is useful but easy to abuse. Depreciation reflects real money the company will eventually spend to replace assets, so EBITDA can flatter capital-intensive businesses. Warren Buffett has been famously sceptical of it for exactly this reason. Always read EBITDA next to free cash flow and actual capital expenditure.