EBITDA - explained

EBITDA stands for:
• Earnings
• Before
• Interest
• Taxes
• Depreciation
• Amortization

It's a financial metric that shows how much money a company makes before accounting for non-operational expenses like interest and taxes and non-cash expenses like depreciation and amortization.

Why is EBITDA important for Businesses?

EBITDA is important because it gives businesses an idea of how much money they generate from their operations.

This is useful for investors and lenders who want to know how profitable a company is.

Knowing how much money a company is making is like a scorecard.

How is EBITDA calculated?

To calculate EBITDA, start with a company's revenue and subtract its cost of goods sold.

Then, you subtract its operating expenses (like salaries and rent).

Another way to calculate it:

Net Income
+ Interest Expense
+ Taxes
+ Depreciation
+ Amortization

EBITDA vs. Net Income

EBITDA:
In EBITDA, you don’t consider these expenses: Depreciation, Taxes, and Interest.

Net Income:
Net income is what remains as profit after depreciation, interest, and taxes are taken into account.