EBITDA is a widely used proxy for a firm's operating performance. It is calculated by adding back interest, taxes and non-cash charges (depreciation and amortization) to net income, or equivalently by taking operating income (EBIT) and adding back depreciation and amortization. By excluding items tied to financing and accounting decisions, EBITDA focuses on cash-like earnings from core operations.
Analysts and investors often compare EBITDA across companies and over time to assess operating profitability independent of capital structure or tax environments. It is also used in valuation contexts, especially as the numerator in multiples such as enterprise value to EBITDA (EV/EBITDA). Because it ignores capex and changes in working capital, EBITDA can differ from cash flow measures and may overstate the cash- generating ability of a business.
As a non-GAAP metric, EBITDA omits interest, taxes, depreciation, amortization, capital expenditures and working capital effects, which can be material for some firms. It should be considered alongside other measures (for example net income, cash flow from operations, and free cash flow) to gain a fuller view of financial performance.
For example, in the latest quarter Company A reported EBITDA of $125 million and net income of $40 million, illustrating how EBITDA can differ from net earnings.
EBIT · Net income · Operating income (EBIT) · Depreciation and amortization · Cash flow from operations · Enterprise value (EV) · EV/EBITDA