EBITDA stands for ‘earnings before interest, taxes, depreciation and amortisation’. It is a measure of a company’s net income – also known as earnings or profit – before any interest, taxes, depreciation and amortisation have been subtracted from this figure. It can be calculated in two ways – either by adding depreciation and amortisation expenses to operating income, or by adding interest, tax, depreciation and amortisation expenses back on top of net income.
EBITDA is useful for comparing companies in different industries where such expenses and rates may be very different, and to assess businesses that have high-value expenses, which can detract from net profits.
Today, most companies will report an EBITDA figure as part of their regular earnings releases. EBITDA is not a measure recognised by the SEC’s generally accepted accounting principles (known as GAAP), as the figure is often reported in different ways by different companies.