EBITDA Explained
Earnings Before Interest Taxes Depreciation Amortization (EBITDA) is a financial metric that shows how much money a company makes before taking into account non-operational expenses, like interest and taxes, as well as non-cash expenses, like depreciation and amortization.
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It indicates:
How much money the business generates from operations
Profitability of a company
Remember: Profitability equals long-term success!
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Buyers of your company
Investors
Lenders/banks
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EBITDA = net income/earnings
Interest
Income tax
Depreciation
Amortization
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When using an accrual basis for accounting, cash flow does not determine revenue, expenses, or net income. EBITDA is used to analyze profit.