ZALIS GLOSSARY: earnings-before-interest,-taxes,-depreciation,-and-amortization-ebitda
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
An indicator of a company's financial performance calculated as:
= Revenue - Expenses (excluding tax, interest, depreciation, and amortization)
EBITDA can be used to analyze the profitability between companies and industries, because it eliminates the effects of financing and accounting decisions.
Notes:
A common misconception is that EBITDA represents cash earnings. EBITDA is good metric to evaluate profitability, but not cash flow.
EBITDA first came into common use with leveraged buyouts in the '80s, where it was used to indicate the ability of a company to service debt. As time passed, it became popular in industries with expensive assets that had to be written down over long periods of time. EBITDA is now commonly quoted by many companies, especially in the technology sector, even when it isn't warranted. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings.