EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization
In one sentenceA measure of a company's operating profit before financing costs, taxes and accounting write-downs. Buyers and investors use it to compare and value businesses.
What it means
EBITDA strips out things that depend on how a company is financed (interest), where it is (taxes) and accounting choices (depreciation of equipment, amortization of intangibles), to show the profit the operations themselves generate.
Businesses are often valued as a multiple of EBITDA, for example "4 to 6 times EBITDA". Adjusted EBITDA also adds back one-time or owner-specific costs.
It is not cash: EBITDA ignores equipment purchases, debt payments and taxes you still have to pay. See EBITA for the close cousin that keeps depreciation in.
How to use it
- If you might sell your company one day, know your EBITDA and what drives it.
- Do not confuse high EBITDA with healthy Cash Flow.
(or operating profit + depreciation + amortization)
How AI helps
AI can calculate EBITDA from your P&L, list possible adjustments to discuss with your accountant, and explain how a buyer might look at it.
Related terms
EBITA Valuation Multiple Valuation P&L Cash Flow