EBITDA

What does EBITDA mean?

EBITDA, short for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a measure used to evaluate a company's operating performance and ability to generate cash. By focusing solely on a company's core operating profitability, EBITDA provides a clearer picture of its earning potential.

EBITDA Formula

EBITDA=Net Income+Interest+Taxes+Depreciation+Amortization

Where:

• Net Income: The total profit earned by the company after deducting all expenses from revenue.
• Interest: The interest expenses incurred by the company on its debt obligations.
• Taxes: The taxes paid by the company to the government.
• Depreciation: The cost of tangible assets over their useful lives.
• Amortization: The cost of intangible assets over their useful lives.

EBITDA Calculation Example

Let's consider a hypothetical company, ABC Corporation, with the following financial information for the fiscal year:

Net Income: ₹1,000,000
Interest Expenses: ₹200,000
Taxes: ₹300,000
Depreciation: ₹150,000
Amortization: ₹50,000

Using the formula mentioned above:

EBITDA=1,000,000+200,000+300,000+150,000+50,000

EBITDA= 1,700,000

So, ABC Corporation's EBITDA for the fiscal year amounts to ₹1,700,000.

EBIT vs EBITDA

EBIT (Earnings Before Interest and Taxes) is similar to EBITDA but excludes depreciation and amortization expenses. While EBITDA provides a broader view of a company's operating performance by excluding non-cash expenses, EBIT offers a more conservative measure of profitability by including depreciation and amortization.

EBITA vs EBITDA

EBITA (Earnings Before Interest, Taxes, and Amortization) is another variant of EBITDA that excludes depreciation expenses but includes amortization. This metric is often used in industries where depreciation is less relevant, such as service-based businesses or companies with minimal tangible assets. EBITDA and EBITA serve similar purposes but cater to different industry dynamics and preferences.