EBITDA
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternate measure of
profitability to net income. By including depreciation and amortization as well as taxes and debt payment
costs, EBITDA attempts to represent the cash profit generated by the company’s operations.
EBITDA is not a metric recognized under generally accepted accounting principles (GAAP). Some public
companies report EBITDA in their quarterly results along with adjusted EBITDA figures typically excluding
additional costs, such as stock-based compensation.
Increased focus on EBITDA by companies and investors has prompted criticism that it overstates
profitability. The U.S. Securities and Exchange Commission (SEC) requires listed companies reporting
EBITDA figures to show how they were derived from net income, and it bars them from reporting EBITDA
on a per-share basis
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a measure of core
corporate profitability. (EBITDA=Net Income+Taxes+Interest Expense+D&A) - EBITDA is calculated by adding interest, tax, depreciation, and amortization expenses to net income
- Some critics, including Warren Buffett, call EBITDA meaningless because it omits depreciation and
capital costs. - The U.S. Securities and Exchange Commission (SEC) requires listed companies to reconcile any
EBITDA figures they report with net income and bars them from reporting EBITDA per share