Think of EBITDA as a way to zoom in on a company’s operational health—it measures how much money the business makes from its core operations, without factoring in costs like debt or taxes. This helps highlight true performance without outside financial influences.
EBITDA = Net income + Interest + Taxes + Depreciation + Amortization
EBITDA highlights how well the company’s core operations are performing, independent of financing, tax structure, or accounting choices like depreciation and amortization. For example, by excluding depreciation—a non-cash expense that lowers profit but doesn’t affect cash flow—EBITDA gives a clearer view of how much operational cash the business is generating.Â
For businesses in industries that frequently require capital (like tech startups or manufacturing), EBITDA is also valuable in comparing profitability with competitors or planning expansions. It helps the company showcase its financial health without the "noise" of external factors like debt costs or regional tax rates.Â
Note: EBITDA doesn’t capture long-term costs, like replacing aging assets or managing high-interest debt.Â
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