Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Definition

A profit measure excluding financing costs, income tax, depreciation, and amortization. It is not cash flow and can omit substantial costs needed to operate or maintain a business.

Analysts often use EBITDA when comparing companies with different debt levels or depreciation costs. It leaves out spending on new equipment and changes in cash tied up in inventory or customer invoices. Companies that report adjusted EBITDA may make further deductions or add-backs.

Example

Company A reports $60 million in net income. Adding back $10 million in interest, $15 million in taxes and $5 million in depreciation and amortization gives EBITDA of $90 million.