A Clear Look at EBITDA

Learn more about this indicator of a company's financial performance. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

| Value Investing EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) The unwieldy acronym EBITDA (usually pronounced phonetically, as if it is a word: ee-bit-dah) is one of the newest terms discussed so far in this course; it's also one of the most controversial. It first came into wide use in the 1980s with the high incidence of leveraged buyouts (the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition). LBO bankers used EBITDA to calculate quickly whether these companies could pay back the interest on these financed deals. As time passed, EBITDA became popular in industries with expensive assets that had to be written down over long periods of time, and over every sector. The use of EBITDA has since spread to a wide range of businesses. Its proponents argue that EBITDA offers a clearer reflection of operations by stripping out expenses that can obscure how the company is really performing. However, EBITDA is not a GAAP metric, i.e. it is not recognized by the Generally Accepted Accounting Principles. This is one of the reasons EBITDA is considered a controversial metric. Its critics say that it's ridiculous to exclude such huge factors as interest, taxes, depreciation, and amortization as a substitute for cash flow. Nonetheless, these days EBITDA comes up very frequently in pretty much any serious conversation about a company's valuation, read on. A Clear Look at EBITDA EBITDA can be used to analyze and compare profitability between companies and industries, but investors should understand that there are serious limits. Read Now » The Formula for Calculating Ebitda (With Examples) EBITDA measures the profitability of a company by stripping out various items from the income statement, but the two formulas can yield different results. Read Now » Free Cash Flow vs. EBITDA: What's the Difference? Cash flow and EBITDA are two ways of looking at the earnings of a business. EBITDA might be better for comparison purposes, while free cash flow is good for valuation. Read Now » How Do Gross Profit and EBITDA Differ? Gross profit and EBITDA show the profitability of a company in different ways. Know what goes into each one before investing in a company's stock. Read Now » Challenging the EBITDA Metric The EBITDA metric gets a bad rap, but it's still a valuable tool when used appropriately. Read Now » CONNECT WITH INVESTOPEDIA Email sent to: geezers.mail@gmail.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy