EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a financial metric used to measure a company’s profitability from its core business operations.

What is EBITDA?

EBITDA measures a company’s profitability from its core business operations by showing earnings before interest, taxes, depreciation, and amortization. It reflects operational performance without the impact of financing costs, tax expenses, and non-cash accounting charges.

In other words, EBITDA focuses on how well a company’s day-to-day business is performing — without getting distracted by things like interest payments on debt, taxes, or accounting methods like depreciation.

Formula:

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

EBITDA = Operating Profit (EBIT) + Depreciation + Amortization

Why do investors use EBITDA?

EBITDA is a popular metric among investors and analysts because it puts the focus where it matters: the actual business performance. It highlights operational profitability. By leaving out unusual, one-time events or non-operating income, EBITDA shows how much a company earns from its core activities. This helps investors understand the underlying health of the business — without being distracted by temporary gains or losses.

It also strips away the effects of financing and accounting choices. Things like interest payments, taxes, and non-cash items (such as depreciation and amortization) can vary widely between companies. By removing these, EBITDA gives a cleaner look at how efficiently a company runs its day-to-day operations.

Lastly, EBITDA makes it easier to compare companies — even across borders. Since tax rates, interest costs, and accounting rules differ between countries, EBITDA helps level the playing field. That’s why it’s especially useful when comparing global companies in the same industry.

EBITDA in real life

Understanding EBITDA becomes much clearer when you see how it shows up in real company reports. Not all companies list EBITDA directly in their financial statements, but many include enough information for you to calculate it or highlight it in earnings presentations.

Example:

In a typical income statement, you might find: