Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
Date created: Oct 12, 2022 • Last updated: Mar 07, 2024
What is Earnings Before Interest, Taxes, Depreciation, and Amortization?
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is one of a few profit metrics. At its simplest, EBITDA focuses only on operational profitability, ignoring non-cash expenses by adding them back to Net Income.
Earnings Before Interest, Taxes, Depreciation, and Amortization Formula
How to calculate Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization If a company has: $50 million in Revenue $10 million in Costs of Goods Sold (COGS) $15 million in Operating Expenses $5 million Depreciation and Amortization Expense $2 million in Interest Expense $3 million in Taxes Net Income = 50 - 10 - 15 - 5 - 2 - 3 = $15 million EBITDA = $15 + 2 + 3 + 5= $25M
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How to visualize Earnings Before Interest, Taxes, Depreciation, and Amortization?
There are many way to visualize EBITDA, but bar charts and line charts are the most common data visualizations associated with this metric. A bar chart can help you quickly identify high-performing years while a line chart helps you view changing trends over time.
Earnings Before Interest, Taxes, Depreciation, and Amortization visualization examples
Earnings Before Interest, Taxes, Depreciation, and Amortization
Line Chart
Earnings Before Interest, Taxes, Depreciation, and Amortization
Bar Chart
Earnings Before Interest, Taxes, Depreciation, and Amortization
Chart
Measuring Earnings Before Interest, Taxes, Depreciation, and AmortizationMore about Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA is used by executives as an indicator of a company's financial value and often serves as a proxy for understanding a business’ earning potential. It’s an effective way for founders and investors to compare two similar companies within the same industry. You need to be cautious when using EBITDA as a measure of success because it doesn’t properly account for the cash available to the business.
For example, it does not take into consideration the timing between when costs are incurred in the making of a product and when revenue is generated from its sale. By definition EBITDA ignores the interest and taxes a company must pay as well as the costs associated with depreciation and amortization of past investments.
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Start tracking your Earnings Before Interest, Taxes, Depreciation, and Amortization data
Use Klipfolio PowerMetrics, our free analytics tool, to monitor your data. Choose one of the following available services to start tracking your Earnings Before Interest, Taxes, Depreciation, and Amortization instantly.