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). Since the distortionary accounting and financing effects on company earnings do not factor into EBITDA, it is a good way of comparing companies within and across industries. This measure is also of interest to a company's creditors, since EBITDA is essentially the income that a company has free for interest payments.
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.
Acronym of Earnings Before Interest, Taxes, Depreciation and Amortization.
Use EBITDA in a sentence
“ 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. ”
“ EBITDA must be fully evaluated before a company can fully understand how much money they actually have; taxes, depreciation of investments, expenses, and revenue all need to be investigated before a dollar value and be obtained. ”
“ 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. ”