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