EBITDA
Also called: earnings before interest, taxes, depreciation, and amortization
EBITDA is earnings before interest, taxes, depreciation, and amortization, a measure of core operating profit found by adding those four items back to net income.
EBITDA strips four costs out of your earnings so the result reflects how the core business performs before financing and accounting choices muddy the picture. You start with net income, then add back interest, taxes, depreciation, and amortization. Interest and taxes come out because they depend on how a company is financed and where it operates rather than how well it sells. Depreciation and amortization come out because they are non cash charges that spread the cost of equipment and intangible assets across years. What remains is a clean look at operating performance.
Lenders and investors lean on EBITDA because it lets them compare businesses on an even footing and estimate how much earnings are available to service debt. An underwriter often measures a proposed loan against EBITDA to judge whether the company generates enough operating profit to carry the new payment. Larger loans, equipment financing, and bank term debt frequently set covenants tied to EBITDA. Keep in mind that EBITDA ignores real cash needs like loan principal and capital spending, so it is one lens among several, not the whole story.
Common questions
Is EBITDA the same as profit?
No. EBITDA adds interest, taxes, depreciation, and amortization back to net income, so it sits above profit on the income statement. It shows operating performance but ignores real costs like taxes and loan principal, which is why lenders look at it alongside actual net profit and cash flow.
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