Earnings Before Interest, Taxes, Depreciation, and Amortization

MoneyBestPal Team
A metric that measures a company's profitability by adding back non-cash expenses such as depreciation and amortization to its earnings.
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Earnings Before Interest, Taxes, Depreciation, and Amortization is referred to as EBITDA. In accounting, corporate finance, and investment banking, it is a metric of a company's financial performance. Adding back interest, taxes, depreciation, and amortization to a company's net income yields EBITDA.

Indicators of a company's operating performance, such as EBITDA, are employed regardless of the capital structure, tax structure, and accounting practices of the organization. EBITDA gives a more accurate picture of a company's capacity to generate cash flow from its core operations by excluding non-operating costs like interest, taxes, depreciation, and amortization.

While being a common performance indicator, EBITDA has certain drawbacks. Secondly, non-recurring or one-time transactions, including gains or losses from the sale of assets, might distort the data. It also doesn't consider how changes in working capital may impact a company's cash flow. Last but not least, it may present a false picture of a company's financial standing, particularly if it is heavily leveraged or has hefty capital expenditures.