Definition
EBITDA
EBITDA is earnings before interest, tax, depreciation, and amortisation, a measure of a company's core operating profitability.
EBITDA strips out financing decisions (interest), tax regimes, and non-cash charges (depreciation, amortisation) to show how much an operation earns from its core business. It is widely used to compare profitability across companies regardless of capital structure.
The EBITDA margin (EBITDA / revenue) gauges operating efficiency. But EBITDA ignores real costs, capex needs and debt servicing, so critics warn against treating it as 'cash profit'. Always pair it with free cash flow and net profit for the full picture.
Related terms
- EV/EBITDAEV/EBITDA compares a company's enterprise value to its earnings before interest, tax, depreciation, and amortisation, a capital-structure-neutral valuation measure.
- Enterprise Value (EV)Enterprise value is the total value of a business — its market capitalisation plus net debt — representing what it would cost to acquire the whole company.
- Free Cash FlowFree cash flow is the cash a company generates after meeting operating expenses and capital expenditure — the surplus it can use to pay dividends, buy back shares, cut debt or grow.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.