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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

    Audit Trail

    An audit trail is a chronological record of every change made to your financial records — who did what, when, and why. It's the digital paper trail that proves your books are legit. Every transaction created, edited, or deleted gets logged, creating an unbreakable chain of accountability.

    Liability

    A liability is a debt or obligation that a business owes to outside parties. Liabilities represent claims against the company's assets and include accounts payable, loans, credit card debt, accrued expenses, and deferred revenue. They appear on the Balance Sheet and are classified as either current

    Non-Operating Income

    Non-operating income is revenue generated from activities outside a business's main operations. This includes interest earned on bank accounts, investment gains, rental income from unused property, insurance settlements, and gains from asset sales. Non-operating income appears separately on the inco

    Fiscal Year

    A fiscal year is the 12-month period a business uses for accounting and financial reporting. It doesn't have to match the calendar year (January–December). Some businesses choose a fiscal year that aligns with their natural business cycle—like a retailer ending in January after the holiday season wr

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