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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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