EBITDA

Earnings before interest, taxes, depreciation and amortization: operating profit with the non-cash charges added back.

DefinitionEarnings before interest, taxes, depreciation and amortization: operating profit with the non-cash charges added back.

EBITDA is earnings before interest, taxes, depreciation and amortization. It is operating profit with depreciation and amortization added back, so it shows what the business earns from operations before financing, tax and the cost of past capital spending. It is not defined by US GAAP, so every company states how it builds it.

How it is computed

EBITDA = operating profit + depreciation + amortization. Or, from the bottom of the P&L: net income + interest + income tax + depreciation + amortization. The two routes must agree. EBITDA margin divides it by revenue.

Example

Revenue of $1,200,000, operating profit of $135,000 and depreciation and amortization of $25,000 give EBITDA of $160,000, an EBITDA margin of 13.3%.

Where it goes wrong

Adjustments that keep growing: "adjusted EBITDA" that removes recurring costs as one-time. SEC registrants that publish it must reconcile it to net income. The full guide is EBITDA margin.

Articles that use this term

Finance metrics and formulas

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