EBITDA
EBITDA, earnings before interest, tax, depreciation and amortisation, is a measure of a company's operating profitability before financing costs, tax and non-cash charges for the wear and write-off of assets.
What is EBITDA?
EBITDA is popular in capital-intensive sectors such as telecoms, where large depreciation charges and differences in debt make net profit hard to compare across companies. It ignores capital expenditure, which is a real cash outflow, so it can flatter companies with heavy investment needs. The WorldCom scandal showed it can also be manipulated, by recording operating costs as capital expenditure.
How it works
EBITDA = net income + interest + taxes + depreciation + amortisation. EBIT is the same but without adding back depreciation and amortisation.