This earnings measure is of particular interest in cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges (such as manufacturing companies) or in the case where a company has a large amount of acquired intangible assets on its books and is thus subject to large amortization charges (such as a company that has purchased a brand or a company that has recently made a large acquisition).
In general, EBITDA is a useful measure only for large companies with significant assets, and/or for companies with a significant amount of debt financing. It is rarely a useful measure for evaluating a small company with no significant loans.
Sometimes also called operational cash flow.
Use EBITDA in a sentence
“ Many companies use EBITDA to compare profitability among their competitors and other companies within their industry since it eliminates the effects of accounting and financing decisions. ”
“ My boss told me that he believed the strongest measure of a company's health was EBITDA because that showed you what the company actually received in revenue and could spend on expenses. ”
“ I had to have someone explain to me what EBITDA meant because it utterly confused me and made me feel like I did not know what I was talking about. ”