EBITDA

[ ee-bit-do ]

Phonetic (Standard)IPA

noun

, Finance, Business.

earnings before interest, taxes, depreciation, and amortization: a widely used measure of the profitability (or lack thereof) resulting from a company’s core operations, calculated by subtracting from total revenue the cost of goods (or services) sold, sales and marketing expenses, and the cost of overhead. Other costs that may be indirectly related to operations, as interest (paid on company debt), taxes (paid on profits), and depreciation and amortization (generally of property and equipment), are not taken into account when calculating EBITDA.

EBITDA

abbreviation for

earnings before interest, tax, depreciation, and amortization Often shortened toEBIT

Discover More

Word History and Origins

Origin of EBITDA¹

First recorded in 1985–90

Discover More

Example Sentences

Using the pro forma earnings measure known as adjusted EBITDA, which excludes some expenses, it doubled its profit to $128 million.

From New York Times

Cardiff Airport uses EBITDA, which records earnings before tax, interest and other items, to report on its financial performance.

From BBC

The Cobre Panama mine's activity accounts for nearly 5% of the country's economy, and last year represented about half of First Quantum's EBITDA.

From Reuters

Those coveted assets have previously been bought and sold at hefty multiples of more than 20 times their EBITDA.

From Reuters

Last year, he said, the publication generated about $13.5 million in earnings before interest, taxes, depreciation and amortization, or EBITDA.

From New York Times

Discover More

More About EBITDA

What does EBITDA mean?

EBITDA is a financial abbreviation that stands for Earnings Before Interest, Tax, Depreciation, and Amortization.

Where does EBITDA come from?

EBITDA assesses a company’s financial performance while excluding factors like taxes and accounting and financing decisions, which often lie outside of the regular, recurring consideration and control of the business’s operations. It is evaluated by taking the company’s net earnings before interest and taxes (EBIT), then adding the depreciation and amortization (DA) expenses.

Knowing a company’s EBITDA margin is a way of measuring a company’s operating profitability. To calculate an EBITDA margin, one would take the company’s EBITDA number (say, $30,000), and divide it by the company’s total revenue (for example, $75,000), equaling 40%. A higher percentage correlates to lower operating expenses, and thus higher bottom lines.

The term EBITDA is credited to John C. Malone, the former president and CEO of Tele-Communications, in the 1970s. It became a popular measurement of a company’s cash flow in the 1980s. EBITDA was heavily used by leveraged buyout investors as a tool to quickly assess whether floundering companies could successfully pay back interest on its debt over a reasonably short length of time, such as a few years, by comparing the ratio between the company’s interest and its EBITDA. This measurement system has since expanded to be used by many different types of industries, companies, and firms.

Writing for Forbes, certified treasury professional Ted Gavin described the EBITDA form of measuring profitability as a “great big lie” and a “fairy tale,” since it can make companies look as if they’re in better shape than they really are, among other accounting-related concerns. Other critics point out that EBITDA ignores so many expenses that it paints a false picture of how profitable a company really is, since a company can make itself seem more successful by showing off its EBITDA number in order to avoid displaying the severity of its high debt levels.

Examples of EBITDA

“When LinkedIn reported its second quarter earnings results, it revealed Microsoft paid just 63 times the company’s trailing-12-month EBITDA.”
—Adam Levy, The Motley Fool, September 2016

“Over the past four quarters, Nathan’s Famous generated $96.1 million in revenue, adjusted EBITDA of $20.2 million and free cash flow of $14 million.”|
—Antoine Gara, Forbes, March 2015

Note

This content is not meant to be a formal definition of this term. Rather, it is an informal summary that seeks to provide supplemental information and context important to know or keep in mind about the term’s history, meaning, and usage.

EBIT Ebla

Browse