EBITDA

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It strips out financing and accounting items to show the cash-generating power of a company core operations. Investors use it to compare profitability across companies with different debt levels and tax situations.

Use EBITDA to compare operating performance between companies and as the basis for the EV/EBITDA valuation multiple. Be cautious, since EBITDA ignores real costs like interest payments and the capital needed to maintain equipment, which can flatter capital-heavy businesses. Always check it alongside net income and free cash flow.

A company with 100 million dollars in revenue, 60 million in operating costs, 15 million in depreciation, and 10 million in interest has EBITDA of 40 million dollars, calculated as revenue minus operating costs but before the depreciation, interest, and taxes are removed.