EBITDA
Also called: earnings before interest tax depreciation and amortisation
Earnings before interest, tax, depreciation and amortisation, a rough measure of the profit from a company's operations.
EBITDA = operating profit + depreciation and amortisation. It is popular because it is not affected by how a company is financed or by its depreciation policy, which makes companies easier to compare.
Its weakness is what it leaves out. Machines wear out and must be replaced, interest must be paid and tax is real, so EBITDA can make a business with heavy spending needs look healthier than it is.
Example
A company with operating profit of ₹170 crore and depreciation of ₹50 crore has EBITDA of ₹220 crore.
Learn more in these lessons
- The income statementHow do you read an income statement?
- Depreciation, amortisation and capital expenditureWhat are depreciation and amortisation?
- Operating profit, EBITDA and net profitWhat is the difference between EBITDA, operating profit and net profit?
- Profit margins and what they revealWhat do profit margins tell you about a company?
- Debt-to-equity and net debtHow do you judge whether a company has too much debt?
- Interest coverageHow can you tell whether a company can afford its interest payments?
- EV/EBITDAWhat does EV/EBITDA tell you, and when does it work best?
Related terms
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