What is EBITDA?
EBITDA is earnings before interest, tax, depreciation and amortisation — a view of core operating profit, stripped of financing and accounting choices.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It takes a company’s profit and adds back those four items to show how much the core business operations earn before financing decisions (interest), tax regimes, and non-cash accounting charges (depreciation/amortisation) muddy the picture.
Its usefulness is comparison: EBITDA lets you compare the operating performance of two companies with different debt levels, tax situations, or asset bases on a more like-for-like basis. The "EBITDA margin" (EBITDA ÷ revenue) is a popular gauge of how efficiently a company turns sales into operating profit.
But treat it with caution — famously, "EBITDA is not cash flow." It ignores the real cost of interest on debt, taxes you actually pay, and the capital needed to maintain assets. A company can show healthy EBITDA and still bleed cash. Use it alongside net profit and free cash flow, never instead of them.
Formula
EBITDA = Operating profit + Depreciation + Amortisation (i.e. earnings before interest, tax, D&A)
See it on real companies
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Common questions
Why do companies highlight EBITDA?
Because it usually looks bigger and smoother than net profit (it excludes interest, tax, and depreciation). That’s useful for comparing operations — but be wary when a company emphasises EBITDA while net profit or cash flow looks weak.
What is a good EBITDA margin?
It varies hugely by industry — software firms can post very high margins, while low-margin retail or manufacturing run thin. Compare within the same sector and track the trend over time.