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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.


EBITDA Formulas and Calculation

If a company doesn't report EBITDA, it can be easily calculated from its financial statements.


The earnings (net income), tax, and interest figures are found on the income statement, while the depreciation and amortization figures are normally found in the notes to operating profit or on the cash flow statement.


There are two EBITDA formulas, one based on net income and the other on operating income, both of which will arrive at basically the same result. (Net income is operating income minus non-operating expenses, such as taxes and interest.)

The respective EBITDA formulas are:

EBITDA = Net Income + Taxes + Interest Expense + D&A

or

EBITDA = Operating Income + D&A

where:

D&A = Depreciation and amortization


Source: Investopedia, EBITDA: Definition, Calculation Formulas, History, and Criticisms, accessed 25 December 2023, <https://www.investopedia.com/terms/e/ev-ebitda.asp>

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