EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric widely used to evaluate a company’s profitability and operational efficiency without the impact of financing and accounting decisions. By focusing on core earnings, EBITDA provides a clearer picture of business performance.

🌟 Why EBITDA Matters
EBITDA helps investors, analysts, and businesses compare companies across industries by standardising profitability measures. It removes variables like debt levels and tax environments, offering a neutral view of operational success.

🧮 How is EBITDA Calculated?
To calculate EBITDA, start with net income and add back:
1️⃣ Interest expenses,
2️⃣ Tax expenses,
3️⃣ Depreciation, and
4️⃣ Amortization.

Formula:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

📊 What Does EBITDA Tell Us?
EBITDA reveals:
* A company’s ability to generate profit from its operations,
* Insights into cash flow potential, and
* Operational performance comparisons between businesses.

💡 Example of EBITDA in Practice
Imagine two companies in the same industry: Company A has a high debt load, while Company B owns all assets outright.

EBITDA allows investors to assess their operational profitability without being skewed by their financing choices.

🌱 The Pros and Cons
✅ Pros: Provides clarity on operational efficiency, useful for comparing similar businesses
❌ Cons: Does not account for capital expenditures, working capital needs, or debt payments

EBITDA is not a one-size-fits-all metric but is a powerful tool when paired with other financial analyses.