EBITDA (earnings before depreciation and amortization)
Operating profit with depreciation and amortization added back — a profit measure closer to the cash the main business brings in.
EBITDA = operating income + depreciation & amortization (D&A)
When EBITDA is large and grows steadily, the core business is seen as generating cash well.
In plain terms
Just as a new car loses value year after year, the machines a company buys wear out too. The books record that wearing-out portion as an expense, but no money actually leaves the company that year.
EBITDA is operating income with that portion (depreciation) added back. So it comes closer to the cash the core business actually brought in.
The name is short for earnings before interest, taxes, depreciation and amortization.
What it tells you
It lets you compare the core earning power of companies on the same yardstick, even when their debt structures, taxes, and accounting methods differ.
It is often used as an input for figures like EV/EBITDA (valuation) or net debt/EBITDA (debt burden).
Formula
EBITDA = operating income + depreciation & amortization (D&A) = earnings before interest, taxes, and depreciation are subtracted
What high or low means
When EBITDA is large and grows steadily, the core business is seen as generating cash well.
That said, the ratio to revenue (EBITDA margin) or the trend is more meaningful than the absolute amount.
EBITDA leaves out depreciation, so it hides the real costs of companies that must keep pouring money into equipment (telecom, manufacturing, airlines). EBITDA is not the same as cash flow — a company with heavy capital spending can show strong EBITDA while the cash actually left over is small.
Interest and taxes are also excluded, so for a heavily indebted company EBITDA can be far from the profit that actually ends up in hand. That is why it is safer to look at it alongside free cash flow (FCF).
Warren Buffett and his longtime partner Charlie Munger are famous for being strongly wary of EBITDA. Munger even quipped that "every time you see the word EBITDA, you should substitute it with 'bullshit earnings'."
The reason is that EBITDA is calculated with depreciation excluded. A company that has to keep pouring money into plants and equipment can still look fine on an EBITDA basis, which hides its actual cash situation. So even when EBITDA looks good, the picture can differ once you look at capital expenditures (CapEx) and actual free cash flow (FCF).
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.