EBITDA - What does EBITDA mean? Read more here
Learn what EBIDTDA means, how it is calculated and how this calculation can grow your business
EBITDA: A key metric to assess operating profitability and compare companies
What Does EBITDA mean?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric used to evaluate a company's operating performance without considering financial and non-cash items.
Usage in accounting
In accounting, EBITDA is often used to analyze a company's operational performance and compare the efficiency between different companies or sectors. By excluding the effects of financing, taxes, and depreciation, EBITDA allows for a clearer focus on the quality and efficiency of a company’s operating income.
Example of calculation
To calculate EBITDA, we can use the following formula:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Let's say a company has the following financial data:
- Net Income: 5,000,000 DKK
- Interest: 300,000 DKK
- Taxes: 500,000 DKK
- Depreciation: 200,000 DKK
- Amortization: 100,000 DKK
EBITDA is calculated as follows:
EBITDA = 5,000,000 DKK + 300,000 DKK + 500,000 DKK + 200,000 DKK + 100,000 DKK = 6,100,000 DKK
In this example, the company has an EBITDA of 6,100,000 DKK, which shows its operating earnings without the influence of interest, taxes, depreciation, and amortization.
What is the difference between EBIT and EBITDA?
It can be difficult to distinguish between EBIT and EBITDA. EBIT stands for Earnings Before Interest & Taxes, which refers to “operating income.” On the other hand, EBITDA stands for Earnings Before Interest, Taxes, Depreciation & Amortization.
Learn what EBIDTDA means, how it is calculated and how this calculation can grow your business