Answer:
EBITDA stands for **Earnings Before Interest, Taxes, Depreciation, and Amortization**. It's a measure used to evaluate a company's operating performance and is calculated by adding back interest, taxes, depreciation, and amortization expenses to net income.
Formulas you can use to calculate EBITDA:
1. Based on net income:
$\text{EBITDA} = \text{Net Income} + \text{Taxes} + \text{Interest Expense} + \text{Depreciation \& Amortization}$
2. Based on operating income:
$\text{EBITDA} = \text{Operating Income} + \text{Depreciation \& Amortization}$
Where:
- **Net Income** is the profit after all expenses have been deducted from revenues.
- **Taxes** are the income taxes paid.
- **Interest Expense** is the cost incurred from borrowing funds.
- **Depreciation and Amortization** are non-cash expenses that reduce the value of assets over time.
Explanation:
EBITDA stands for **Earnings Before Interest, Taxes, Depreciation, and Amortization**. It's a measure used to evaluate a company's operating performance and is calculated by adding back interest, taxes, depreciation, and amortization expenses to net income. Here are the formulas you can use to calculate EBITDA:
1. Based on net income:
$\text{EBITDA} = \text{Net Income} + \text{Taxes} + \text{Interest Expense} + \text{Depreciation \& Amortization}$
2. Based on operating income:
$\text{EBITDA} = \text{Operating Income} + \text{Depreciation \& Amortization}$
Where:
- **Net Income** is the profit after all expenses have been deducted from revenues.
- **Taxes** are the income taxes paid.
- **Interest Expense** is the cost incurred from borrowing funds.
- **Depreciation and Amortization** are non-cash expenses that reduce the value of assets over time.
EBITDA is often used in valuation ratios and can be seen as a proxy for cash flow from the company's operations. However, it's important to note that EBITDA is not recognized under generally accepted accounting principles (GAAP), and some critics argue that it can overstate a company's profitability since it doesn't account for capital costs like depreciation.
