# 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.