EBITDA: Meaning & Example

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a widely used metric for measuring a company's core operational profitability. By stripping out non-operating expenses (like interest on debt and taxes) and non-cash accounting expenses (like depreciation of factory equipment), EBITDA gives investors a clear view of how much cash the core business is actually generating from its day-to-day operations.

A heavily indebted manufacturing company might show a negative Net Income on its tax returns because of massive interest payments and depreciation of its machinery. However, its EBITDA might be highly positive, showing that its core product is actually selling very profitably.