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EBITDA
Definition
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance and profitability.
Explanation
EBITDA is widely used by investors and analysts to evaluate a company's operational efficiency by removing the effects of financing decisions, tax environments, and capital expenditures. It provides a clearer picture of core business profitability.
EBITDA is calculated by starting with net income and adding back interest, taxes, depreciation, and amortization. It is commonly used in valuation multiples (EV/EBITDA) and debt covenant calculations.
Example
A company has net income of $500,000, interest expense of $50,000, tax expense of $100,000, and depreciation of $75,000. Its EBITDA is $725,000.