Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA
EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it. EBITDA can be used to analyze and compare profitability between companies and industries because it nullifies the effects of financing and accounting decisions. However, this is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.
Finance Professionals
It is sometimes used by debtholders to measure the creditworthiness of a company. In theory, companies with higher EBITDA are supposed to adequately cover their debt payments. However, many experts don’t find it a much useful metric as companies have to ultimately pay interest, taxes, depreciation, and amortization.