EBITDA
Earnings before interest, tax, depreciation and amortisation: the business’s raw profitability.
Business profitability, before everything else
EBITDA measures what the business generates before interest, tax, depreciation and amortisation. It allows comparing companies with different debt, tax and age of equipment.
Its limits
EBITDA ignores the investment needed to maintain the business: a capital-heavy company can show strong EBITDA and little cash. That is why analysts add free cash flow.
Worked example
From revenue to net income
- Revenue 1,000; operating costs 800: EBITDA 200 (20% margin).
- Depreciation 60: operating profit 140.
- Interest 20, tax 30: net income 90.
Out of 1,000 of sales, 90 is left for shareholders.
Common mistakes
- Confusing EBITDA with cash.
- Trusting an “adjusted” EBITDA that excludes costs that recur.
Notitia newsroom · education, not investment advice.