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Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): Definition and Meaning
Definition
Earnings before interest, taxes, depreciation, and amortization, commonly called EBITDA, is a non-GAAP measure often used to evaluate operating performance before those specified expenses.
Why It Matters
EBITDA may be used in valuation, lending, acquisition, and performance-analysis discussions because it can help compare operating results before certain financing, tax, and noncash expense effects. However, EBITDA does not replace cash flow, net income, capital-expenditure needs, debt-service requirements, or GAAP financial statements.
When EBITDA is presented, the calculation should be clear and consistently applied.
Example
A buyer reviewing a company may consider EBITDA alongside working capital, capital expenditures, debt, customer concentration, and cash flow.
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