Definition of Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA)?
- Posted on November 19, 2019
- Financial Terms
- By admin admin
EBITDA stands for Earnings Before Interest, Tax, Depreciation & Amortization and is one of the most commonly used indicators of the profitability of a firm.
The EBITDA calculation is Operating Income + Depreciation + Amortization + Stock-Based Compensation.
EBITDA is a popular metric used for comparing companies, particularly with an LBO. The most common multiple using EBITDA is:
- Enterprise Value / EBITDA
The reason behind using EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) is because it allows you to see both the profitability of a firm excluding taxes and also because it shows the ability of the firm to service debt (hence its popularity in debt-financed buyouts) and that it is not affected by capital structure (i.e. debt payments).
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