Definition
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is a measure of a company’s financial performance that excludes non-cash expenses such as interest, taxes, depreciation, and amortization. It is a measure of a company’s operating performance and is used to compare the profitability of different companies.
Importance
EBITDA is an important measure of a company’s financial performance because it excludes non-cash expenses such as interest, taxes, depreciation, and amortization. This allows investors to compare the profitability of different companies without taking into account the effects of financing and taxation. It also provides a more accurate picture of a company’s operating performance, as it excludes non-cash expenses that can distort the true picture of a company’s profitability.
Example
For example, Company A has a net income of $1 million and an EBITDA of $2 million. This means that Company A’s operating performance is $1 million better than its net income, as the non-cash expenses of interest, taxes, depreciation, and amortization have been excluded.
