What is Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)?
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a financial metric used to measure a company’s profitability. It is calculated by subtracting expenses such as interest, taxes, depreciation, and amortization from a company’s total revenue. EBITDA is often used to compare the profitability of different companies in the same industry, as it eliminates the effects of financing and accounting decisions.
History of EBITDA
EBITDA was first introduced in the 1980s as a way to measure a company’s profitability without taking into account the effects of financing and accounting decisions. It was initially used by investment bankers to evaluate potential investments, but has since become a widely used metric for investors, analysts, and other stakeholders.
EBITDA vs. Net Income
EBITDA and net income are two different measures of a company’s profitability. Net income is the total amount of money a company earns after subtracting all expenses, including taxes, interest, and depreciation. EBITDA, on the other hand, only subtracts expenses related to interest, taxes, depreciation, and amortization. As a result, EBITDA is often seen as a more accurate measure of a company’s profitability.
Table of Comparisons
| Metric | EBITDA | Net Income |
|---|---|---|
| Expenses Subtracted | Interest, Taxes, Depreciation, and Amortization | All Expenses |
| Accuracy | High | Low |
Summary
EBITDA is a financial metric used to measure a company’s profitability. It is calculated by subtracting expenses such as interest, taxes, depreciation, and amortization from a company’s total revenue. EBITDA is often used to compare the profitability of different companies in the same industry, as it eliminates the effects of financing and accounting decisions. For more information about EBITDA, visit Investopedia, The Balance, or the Financial Times.
See Also
- Net Income
- Gross Profit
- Operating Income
- Operating Expenses
- Cash Flow
- Return on Investment (ROI)
- Return on Equity (ROE)
- Debt-to-Equity Ratio (D/E)
- Price-to-Earnings Ratio (P/E)
- Earnings Per Share (EPS)
