what is ebitda

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a companys profitability of the operating business only, thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base. EBITDA is not a metric recognized under generally accepted accounting principles (GAAP) . It is a formula to measure a company’s financial health and ability to generate cash flow. By stripping out the non-cash depreciation and amortization expense as well as taxes and debt costs dependent on the capital structure, EBITDA attempts to represent cash profit generated by the company’s operations. EBITDA is widely used when assessing the performance of a company. It can be used to showcase a firm’s financial performance without the impact of its capital structure. However, EBITDA has been criticized for overstating profitability. The U.S. Securities and Exchange Commission (SEC) requires listed companies reporting EBITDA figures to show how they were derived from net income, and it bars them from reporting EBITDA on a per-share basis.