EBITDA is the abbreviation of Earnings Before Interest, Taxes, Depreciation, and Amortization. But what to do with these? EBITDA, generally, is a measurement of a company’s overall financial performance. Mostly, the function is for an alternative to net income. The use of EBITDA could vary. Some of them are comparing companies against each other, measuring core profit trends, and estimating cash flow to pay debt.
The metrics of EBITDA does not reflect the capital investments like property, plants, and equipment. This also excludes the expenses associated with debt from adding back interest expense and taxes to earnings. On the other hand, it reflects a more precise measure of corporate performance. It is able to present earnings before the influence of accounting as well as financial deductions.
In a nutshell, EBITDA is the measurement of profitability.
Based in the U.S. GAAP (Generally Accepted Accounting Principles) there is no legal requirement for firms to disclose their EBITDA. It could work by reporting and using the information in the company’s financial statements.
Figures of EBITDA covering earnings, tax and interest are in the income statement. The figure of depreciation and amortization are in the notes to operating profit or on the cash flow statement. There is this shortcut to calculate EBITDA. It begins with operating profit. The term is EBIT (Earning Before Interest and Tax). It adds back depreciation and amortization.
Here is the Formula and the Calculation of EBITDA
The calculation of EBITDA is mostly straightforward. It covers information in the company’s income statement and balance sheet. There are two formulas to calculate EBITDA. One uses operating income. Two uses the other net income.
