EBITDA
Financials
Industry:
Sector Agnostic
Short Definition
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.
It’s a quick view of profit from core operations before financing costs (interest), tax effects,
and non-cash accounting charges (D&A).
Short Definition
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.
It’s a quick view of profit from core operations before financing costs (interest), tax effects,
and non-cash accounting charges (D&A).
Short Definition
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.
It’s a quick view of profit from core operations before financing costs (interest), tax effects,
and non-cash accounting charges (D&A).
Why it matters for Investors
Apples-to-apples ops profit: Takes out financing and tax differences, so it’s easier
to compare two businesses.Valuation shorthand: Used in EV/EBITDA multiples across many industries.
Lender check: Banks look at EBITDA to gauge how much debt a business can safely handle.
Why it matters for Investors
Apples-to-apples ops profit: Takes out financing and tax differences, so it’s easier
to compare two businesses.Valuation shorthand: Used in EV/EBITDA multiples across many industries.
Lender check: Banks look at EBITDA to gauge how much debt a business can safely handle.
Why it matters for Investors
Apples-to-apples ops profit: Takes out financing and tax differences, so it’s easier
to compare two businesses.Valuation shorthand: Used in EV/EBITDA multiples across many industries.
Lender check: Banks look at EBITDA to gauge how much debt a business can safely handle.
Formula
Practical considerations -
Non-GAAP: EBITDA isn’t defined by GAAP/IFRS. Always state your definition and
reconcile to a GAAP number (Net income or Operating income).What’s included: Plain EBITDA does not add back stock-based comp, restructuring,
or one-offs. If you remove extras, label it Adjusted EBITDA and list each adjustment.Be consistent: Same definition every period. No moving goalposts.
Formula
Practical considerations -
Non-GAAP: EBITDA isn’t defined by GAAP/IFRS. Always state your definition and
reconcile to a GAAP number (Net income or Operating income).What’s included: Plain EBITDA does not add back stock-based comp, restructuring,
or one-offs. If you remove extras, label it Adjusted EBITDA and list each adjustment.Be consistent: Same definition every period. No moving goalposts.
Formula
Practical considerations -
Non-GAAP: EBITDA isn’t defined by GAAP/IFRS. Always state your definition and
reconcile to a GAAP number (Net income or Operating income).What’s included: Plain EBITDA does not add back stock-based comp, restructuring,
or one-offs. If you remove extras, label it Adjusted EBITDA and list each adjustment.Be consistent: Same definition every period. No moving goalposts.
Worked Example
Line Item | Amount |
|---|---|
Revenue | $100M |
Less : Cost of Sales | $40M |
Gross Profit | $60M |
Less : Operating Expenses (Excluding Depreciation & Amortization) | $25M |
EBITDA | $35M |
Notes:
Two paths, same result: EBITDA via EBIT + D&A should match EBITDA via Net Income
+ Interest + Taxes + D&A.D&A is total: Add back all depreciation & amortization (whether booked in COGS or OpEx).
Non-cash vs cash: D&A is non-cash; EBITDA still ignores working capital swings, taxes, and capex.
One-offs: Exclude one-offs only in Adjusted EBITDA (not plain).
List each add-back (restructuring, impairments, gains on asset sales, M&A costs) and reconcile.Capitalized costs: Capitalizing software or commissions lowers OpEx today and raises amortization later
— plain EBITDA can look better near-term; explain if material.Leases: If you report under IFRS 16, note that EBITDA is structurally higher vs pre-2019;
consider a comparison view if helpful. Under US GAAP (ASC 842), operating leases
typically don’t boost EBITDA.
Worked Example
Line Item | Amount |
|---|---|
Revenue | $100M |
Less : Cost of Sales | $40M |
Gross Profit | $60M |
Less : Operating Expenses (Excluding Depreciation & Amortization) | $25M |
EBITDA | $35M |
Notes:
Two paths, same result: EBITDA via EBIT + D&A should match EBITDA via Net Income
+ Interest + Taxes + D&A.D&A is total: Add back all depreciation & amortization (whether booked in COGS or OpEx).
Non-cash vs cash: D&A is non-cash; EBITDA still ignores working capital swings, taxes, and capex.
One-offs: Exclude one-offs only in Adjusted EBITDA (not plain).
List each add-back (restructuring, impairments, gains on asset sales, M&A costs) and reconcile.Capitalized costs: Capitalizing software or commissions lowers OpEx today and raises amortization later
— plain EBITDA can look better near-term; explain if material.Leases: If you report under IFRS 16, note that EBITDA is structurally higher vs pre-2019;
consider a comparison view if helpful. Under US GAAP (ASC 842), operating leases
typically don’t boost EBITDA.
Worked Example
Line Item | Amount |
|---|---|
Revenue | $100M |
Less : Cost of Sales | $40M |
Gross Profit | $60M |
Less : Operating Expenses (Excluding Depreciation & Amortization) | $25M |
EBITDA | $35M |
Notes:
Two paths, same result: EBITDA via EBIT + D&A should match EBITDA via Net Income
+ Interest + Taxes + D&A.D&A is total: Add back all depreciation & amortization (whether booked in COGS or OpEx).
Non-cash vs cash: D&A is non-cash; EBITDA still ignores working capital swings, taxes, and capex.
One-offs: Exclude one-offs only in Adjusted EBITDA (not plain).
List each add-back (restructuring, impairments, gains on asset sales, M&A costs) and reconcile.Capitalized costs: Capitalizing software or commissions lowers OpEx today and raises amortization later
— plain EBITDA can look better near-term; explain if material.Leases: If you report under IFRS 16, note that EBITDA is structurally higher vs pre-2019;
consider a comparison view if helpful. Under US GAAP (ASC 842), operating leases
typically don’t boost EBITDA.
Best Practices
Define & reconcile: State exactly how you calculate EBITDA, and show a simple reconciliation to Operating Income (EBIT) or Net Income every time.
Be consistent: Same definition each period. If you change it, call it out and show the impact.
Plain vs Adjusted: EBITDA (plain) adds back only D&A. If you add back stock comp, restructuring, M&A costs, etc., label it Adjusted EBITDA and list each add-back clearly.
Show both $ and %: Report EBITDA ($) and EBITDA Margin (%) for quick comparability.
Bridge the drivers: Include a simple bridge (price/mix, volume, gross margin, OpEx changes) so readers see why EBITDA moved.
Segment it: Break out by product, region, or business unit if material—blended EBITDA can hide problems.
Pair with cash: Always show Operating Cash Flow, Capex, Free Cash Flow (FCF) alongside EBITDA. EBITDA ≠ cash.
Capex context: Heavy maintenance capex can make strong EBITDA less impressive—disclose capex split (maintenance vs growth) if you can.
Leases (important): Under IFRS 16, EBITDA is higher (rent becomes D&A + interest). Under US GAAP (ASC 842), operating lease expense usually stays in OpEx, so EBITDA is generally unchanged (finance leases behave like IFRS). Disclose your policy so comparisons are fair.
Other income/FX: Keep interest income, FX gains/losses, and one-offs out of EBITDA (or put them in “Adjusted” with clear labels).
EBITDA is comparable across firms, but still affected by accounting choices (capitalization, lease policy, SBC). Pair with cash metrics.
Best Practices
Define & reconcile: State exactly how you calculate EBITDA, and show a simple reconciliation to Operating Income (EBIT) or Net Income every time.
Be consistent: Same definition each period. If you change it, call it out and show the impact.
Plain vs Adjusted: EBITDA (plain) adds back only D&A. If you add back stock comp, restructuring, M&A costs, etc., label it Adjusted EBITDA and list each add-back clearly.
Show both $ and %: Report EBITDA ($) and EBITDA Margin (%) for quick comparability.
Bridge the drivers: Include a simple bridge (price/mix, volume, gross margin, OpEx changes) so readers see why EBITDA moved.
Segment it: Break out by product, region, or business unit if material—blended EBITDA can hide problems.
Pair with cash: Always show Operating Cash Flow, Capex, Free Cash Flow (FCF) alongside EBITDA. EBITDA ≠ cash.
Capex context: Heavy maintenance capex can make strong EBITDA less impressive—disclose capex split (maintenance vs growth) if you can.
Leases (important): Under IFRS 16, EBITDA is higher (rent becomes D&A + interest). Under US GAAP (ASC 842), operating lease expense usually stays in OpEx, so EBITDA is generally unchanged (finance leases behave like IFRS). Disclose your policy so comparisons are fair.
Other income/FX: Keep interest income, FX gains/losses, and one-offs out of EBITDA (or put them in “Adjusted” with clear labels).
EBITDA is comparable across firms, but still affected by accounting choices (capitalization, lease policy, SBC). Pair with cash metrics.
Best Practices
Define & reconcile: State exactly how you calculate EBITDA, and show a simple reconciliation to Operating Income (EBIT) or Net Income every time.
Be consistent: Same definition each period. If you change it, call it out and show the impact.
Plain vs Adjusted: EBITDA (plain) adds back only D&A. If you add back stock comp, restructuring, M&A costs, etc., label it Adjusted EBITDA and list each add-back clearly.
Show both $ and %: Report EBITDA ($) and EBITDA Margin (%) for quick comparability.
Bridge the drivers: Include a simple bridge (price/mix, volume, gross margin, OpEx changes) so readers see why EBITDA moved.
Segment it: Break out by product, region, or business unit if material—blended EBITDA can hide problems.
Pair with cash: Always show Operating Cash Flow, Capex, Free Cash Flow (FCF) alongside EBITDA. EBITDA ≠ cash.
Capex context: Heavy maintenance capex can make strong EBITDA less impressive—disclose capex split (maintenance vs growth) if you can.
Leases (important): Under IFRS 16, EBITDA is higher (rent becomes D&A + interest). Under US GAAP (ASC 842), operating lease expense usually stays in OpEx, so EBITDA is generally unchanged (finance leases behave like IFRS). Disclose your policy so comparisons are fair.
Other income/FX: Keep interest income, FX gains/losses, and one-offs out of EBITDA (or put them in “Adjusted” with clear labels).
EBITDA is comparable across firms, but still affected by accounting choices (capitalization, lease policy, SBC). Pair with cash metrics.
FAQs
Does EBITDA include stock-based comp?
Plain EBITDA: yes (it’s in OpEx). Adjusted EBITDA: maybe excludes it—must be clearly labeled.Is higher always better?
Not by itself. Check EBITDA margin %, Capital Expenditure needs, and Free Cash Flow to see quality of earnings.How is Operating Income different from EBITDA?
Operating Income (EBIT) is calculated after subtracting Depreciation & Amortisation, while EBITDA is not.
FAQs
Does EBITDA include stock-based comp?
Plain EBITDA: yes (it’s in OpEx). Adjusted EBITDA: maybe excludes it—must be clearly labeled.Is higher always better?
Not by itself. Check EBITDA margin %, Capital Expenditure needs, and Free Cash Flow to see quality of earnings.How is Operating Income different from EBITDA?
Operating Income (EBIT) is calculated after subtracting Depreciation & Amortisation, while EBITDA is not.
FAQs
Does EBITDA include stock-based comp?
Plain EBITDA: yes (it’s in OpEx). Adjusted EBITDA: maybe excludes it—must be clearly labeled.Is higher always better?
Not by itself. Check EBITDA margin %, Capital Expenditure needs, and Free Cash Flow to see quality of earnings.How is Operating Income different from EBITDA?
Operating Income (EBIT) is calculated after subtracting Depreciation & Amortisation, while EBITDA is not.
Related Metrics
Commonly mistaken for:
Operating Income / EBIT: EBIT = Operating Income. EBITDA = EBIT + Depreciation + Amortization.
Net Income: After interest, taxes, and non-operating items. EBITDA excludes those.
Cash From Operations (CFO): Cash measure including working-capital swings; EBITDA is non-cash and ignores WC.
Free Cash Flow (FCF): CFO − capex (and other items). EBITDA doesn’t deduct capex.
Adjusted EBITDA: Company-specific add-backs (restructuring, SBC, etc.). Not the same as plain EBITDA.
Gross Profit: Revenue − COGS only; EBITDA also subtracts OpEx (before D&A).
Related Metrics
Commonly mistaken for:
Operating Income / EBIT: EBIT = Operating Income. EBITDA = EBIT + Depreciation + Amortization.
Net Income: After interest, taxes, and non-operating items. EBITDA excludes those.
Cash From Operations (CFO): Cash measure including working-capital swings; EBITDA is non-cash and ignores WC.
Free Cash Flow (FCF): CFO − capex (and other items). EBITDA doesn’t deduct capex.
Adjusted EBITDA: Company-specific add-backs (restructuring, SBC, etc.). Not the same as plain EBITDA.
Gross Profit: Revenue − COGS only; EBITDA also subtracts OpEx (before D&A).
Related Metrics
Commonly mistaken for:
Operating Income / EBIT: EBIT = Operating Income. EBITDA = EBIT + Depreciation + Amortization.
Net Income: After interest, taxes, and non-operating items. EBITDA excludes those.
Cash From Operations (CFO): Cash measure including working-capital swings; EBITDA is non-cash and ignores WC.
Free Cash Flow (FCF): CFO − capex (and other items). EBITDA doesn’t deduct capex.
Adjusted EBITDA: Company-specific add-backs (restructuring, SBC, etc.). Not the same as plain EBITDA.
Gross Profit: Revenue − COGS only; EBITDA also subtracts OpEx (before D&A).
Source of:
Components:
Index