Definition
EBITDA approximates operating cash flow by adding back non-cash depreciation and amortization to EBIT. It's widely used for valuation (EV/EBITDA) because it allows comparison across companies with different capital structures and depreciation policies. Critics argue it ignores real capital costs.
Formula
EBITDA = Operating Income + Depreciation + Amortization
Example
Operating income of $25M plus $10M D&A equals $35M EBITDA. At $350M enterprise value, that's 10x EV/EBITDA, a common multiple for mature industrial companies.
FAQ
What is EBITDA?
Earnings before interest, taxes, depreciation, and amortization.
How do you calculate EBITDA?
A common formula for EBITDA is: EBITDA = Operating Income + Depreciation + Amortization
Why is EBITDA important?
EBITDA helps investors evaluate financial statements and make more informed decisions.