What Earnings Before Interest, Taxes, Depreciation and Amortisation do you earn?
EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortisation – essentially takes sales revenue and deducts all expenses other than interest, profit taxes, depreciation and amortisation.
As such it is a measure of a company’s operational profitability over time, but removes the possible distortion that can be caused by changes in tax rates, interest rates, depreciation policies and amortisation rates. These can be influenced by financing and accounting decisions.
As a result it allows comparison between similar businesses without taking into account their capital structure – one business may have no debts, while another may be highly geared.