What does EBITDA stand for?

EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternate measure of profitability to net income. By including depreciation and amortization as well as taxes and debt payment costs, EBITDA attempts to represent the cash profit generated by the company's operations.

How is EBITDA calculated?

EBITDA is calculated by adjusting operating income (EBIT) for non-cash items, namely the add-back of depreciation and amortization (D&A). In contrast, the formula to calculate EBITDA can start with net income, from which taxes, interest expense, depreciation, and amortization are added back.

What is EBITDA used for?

EBITDA can be used to track and compare the underlying profitability of companies regardless of their depreciation assumptions or financing choices. Like earnings, EBITDA is often used in valuation ratios, notably in combination with enterprise value as EV/EBITDA, also known as the enterprise multiple .