EBITDA

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Indicator Description

In a nutshell, EBITDA is calculated by adding back each of the excluded items to the post-tax profit, and can be used to compare companies with very different capital structures.

EBITDA

 = 

Revenue

-

Basic Expenses

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a measure of a company operating cash flow based on data from the company income statement and is a very good way to compare companies within industries or across different sectors. However, unlike Operating Cash Flow, EBITDA does not include the effects of changes in working capital.

EBITDA In A Nutshell

Another way to use EBITDA is to compare it with other companies in the industry. When comparing companies, you want to ensure you are compare apples to apples and this data point allows you to do so. When looking at EBITDA, remember it is non-GAAP and it allows for discretion in what is used to formulate the total. When you look at the EBITDA, you want to ensure it is not too far off from the past years as that could indicate something is wrong with the company or good, if it skews to far one way.

EBITDA or earnings before interest, tax, depreciation, and amortization, helps to gauge how a company is operating and performing. When looking at this, you can evaluate how an company is preforming without taking into account decision related to finance or tax. Another way to look at it is net income with everything from interest to tax. Many valuation firms will use EBITDA in the numbers to help people gain an understanding of how the company has been doing compared to years past.

Closer Look at EBITDA

In the end, there are many different data points you can use and EBITDA is one of the most popular and many valuation firms use it in their analysis. Be sure to use many different sets of data because even something little could miss here but hit another data point. The goal is to achieve the most well rounded opinion about the company and learn about the major details. Regardless, test out all the data points and find what fits you the best. After that, you can tweak and adjust to either incorporate EBITDA or leave it out.

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