EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric used to measure a company's profitability by calculating its earnings before accounting for certain expenses, such as interest payments on debt, other operating expenses, taxes, depreciation, and amortization.

Example:

Let's say we are evaluating the financial performance of a company and you have the following information:

  • Revenue: $500,000
  • Cost of goods sold: $300,000
  • Operating expenses: $100,000
  • Depreciation expense: $20,000
  • Amortization expense: $5,000

To calculate EBITDA for this company, we would use the following formula:

EBITDA = Operating income + Depreciation expense + Amortization expense

First, we need to calculate the company's operating income:

Operating income = Revenue - Cost of goods sold - Operating expenses 

Operating income = $500,000 - $300,000 - $100,000 

Operating income = $100,000

Next, you need to add back the depreciation and amortization expenses:

EBITDA = Operating income + Depreciation expense + Amortization expense 

EBITDA = $100,000 + $20,000 + $5,000 EBITDA = $125,000

Therefore, the EBITDA for this company is $125,000. This means that the company generated $125,000 in earnings before accounting for interest, taxes, depreciation, and amortization expenses.