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EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a measure of operating profitability that strips out financing and accounting decisions to show core business performance.

EBITDA Definition

EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures your business's operating performance by removing the effects of financing (interest), tax strategy (taxes), and non-cash charges (depreciation and amortization).

How to Calculate EBITDA

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Or: EBITDA = Operating Income + Depreciation + Amortization

Why EBITDA Matters

  • Valuations — businesses are often valued as a multiple of EBITDA (e.g., "sold for 5x EBITDA")
  • Comparisons — strips out differences in capital structure and tax situations so you can compare businesses apples-to-apples
  • Lending — banks use EBITDA to calculate debt service coverage ratios
  • M&A — acquirers use EBITDA to assess what they're buying

    • EBITDA Limitations

  • Ignores capital expenditures (a business that needs heavy equipment investment looks better than it is)
  • Ignores working capital changes
  • Can be manipulated by aggressive revenue recognition
  • Not a GAAP measure — companies can define it differently

    • How to Find EBITDA in QuickBooks

    Run a P&L report. Take your net income, then add back interest expense, income tax expense, depreciation expense, and amortization expense. QuickBooks doesn't have an EBITDA report, but all the components are in your P&L.

    FAQ

    Q: Is EBITDA the same as cash flow?

    A: No. EBITDA is a profitability proxy, not actual cash flow. It doesn't account for changes in working capital, capital expenditures, or debt payments.

    Related Terms

  • Net Income
  • Depreciation
  • Gross Profit
  • Profit And Loss

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    Related Terms

    Indirect Cost

    An indirect cost is a business expense that can't be traced directly to a single product, service, or project. These costs support the overall business but aren't tied to a specific revenue-generating activity. Rent, utilities, administrative salaries, and office supplies are common indirect costs.

    Revenue Recognition

    Revenue recognition is the accounting principle that determines when revenue should be recorded in your books. Under accrual accounting, revenue is recognized when it's earned — meaning the product is delivered or the service is performed — regardless of when payment is received. This ensures financ

    Cost Center

    A cost center is a business unit or department that incurs expenses but doesn't directly generate revenue. Cost centers support revenue-producing activities — think HR, IT, accounting, facilities, or R&D. They're evaluated on their ability to control costs and provide value to the organization, not

    Materiality

    Materiality is an accounting concept that determines whether an error, omission, or misstatement is significant enough to influence decision-making by users of financial statements. Small, inconsequential amounts can be handled with simplified accounting methods, while material amounts require preci

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