EBITDA
Htay Aung (Chris)
What is EBITDA?
EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a widely used financial metric that provides a clear snapshot of a company's operational performance. By excluding interest, taxes, depreciation, and amortization, EBITDA focuses solely on the profitability generated from core business operations. This makes it a valuable tool for comparing companies within the same industry, as it bypasses the effects of financing and accounting decisions.
What is EBITDA, and what is your take on this metric?
EBITDA stands for,
Earnings
Before
Interest
Taxes
Depreciation
Amortization
It's a financial metric that shows how much money a company makes before taking into account non-operational expenses like interest and taxes and non-cash expenses like depreciation and amortization.
Why is EBITDA Important for Businesses?
EBITDA is important because it gives businesses an idea of how much money they're generating from their operations.
EBITDA is important because it gives businesses an idea of how much money they're generating from their operations.
This is useful for investors and lenders who want to know how profitable a company is.
It’s like a scorecard to know how much money a company is making.
How is EBITDA Calculated?
Calculating EBITDA is relatively straightforward. The formula is:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
To break it down:
Net Income: The profit a company makes after all expenses have been deducted from revenue.
Interest: The cost incurred by a company for borrowing funds.
Taxes: Government levies based on the company's earnings.
Depreciation: The reduction in the value of tangible assets over time.
Amortization: The gradual write-off of intangible assets over a period of time.
By adding back interest, taxes, depreciation, and amortization to the net income, EBITDA aims to provide a more accurate reflection of a company's operational profitability.
EBITDA vs. Net Income
EBITDA, In EBITDA, you don’t take into consideration these expenses: Depreciation, Taxes, Interest.
Net Income, But the net income is what remains as actual profit after depreciation, interest, taxes are taken in account.