EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization,is a measure of a company's cash flow before tax rates and depreciation, giving investors insight into earnings from core business operations
EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization,is a measure of a company's cash flow before certain deductions. It allows investors to see how much money a company is making by computing earnings from core business operations, without including the effects of capital structure, tax rates and depreciation policies. Note: EBITDA is a "calculated" indicator that is not defined under Generally Accepted Accounting Principles (GAAP).
The calculation for EBITDA is revenue(s) minus expenses, before tax, interest, depreciation, and amortization.
EBITDA gives the investor an idea of how much money the company has made before its deductions. It is especially useful for a new company that has just started business and has not yet been hit with taxes, payments to creditors, and so on. EBITDA demonstrates to investors the ability to have a return on their investments.
EBITDA is a rough approximation for cash flow; it ignores many factors that have an impact on true cash flow, such as debt payments. Even so, it may be useful for evaluating firms in the same industry with widely different capital structures, tax rates, and depreciation policies. EBITDA is often used in various evaluating ratios, such as EV/EBITDA and EBITDA margins.