Definition
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Analysts use it to compare the core operating profitability of companies regardless of capital structure or tax situation.
Formula
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. You can also start from operating income (EBIT) and add back depreciation and amortization.
Why it matters
Because it removes financing and non-cash charges, EBITDA is widely used in valuation multiples such as EV/EBITDA and in lending covenants.
Limitations
EBITDA is not a US GAAP measure, it ignores capital expenditures and working capital needs, and it can overstate cash generation for capital-intensive businesses.
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