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Definition — what does that mean?
Earnings before interest, taxes, depreciation and amortisation: the operating profit with the write-downs of assets added back.
In Swedish: EBITDA
EBITDA
Earnings before interest, taxes, depreciation and amortisation: the operating profit with the write-downs of assets added back. A measure of the cash a business operation earns before capital costs.
EBITDA=330,000
EBITDA equals 250,000 plus 80,000, equals 330,000
You are given
EBIT is the operating profit, after the depreciation of machines and buildings and the amortisation of intangible assets have been charged. Adding those charges back gives the profit the operation made before its assets were written down: earnings before interest, taxes, depreciation and amortisation.
An operating profit of 250,000 after 80,000 of depreciation: EBITDA = 250,000 + 80,000 = 330,000. Turned round, a company reporting EBITDA of 330,000 and depreciation of 80,000 has an EBIT of 250,000.
Depreciation is a cost with no cash leaving the company in the year; the cash left when the asset was bought. So EBITDA is close to the cash the operation generates before capital costs, which is why lenders size loans against it and why businesses with different assets, or different accounting for them, are compared on it. The interest coverage ratio is often calculated on EBITDA for the same reason.
The assets do wear out and will have to be replaced, and that replacement is paid for out of the EBITDA. A company whose EBITDA is 330,000 and whose machines need 80,000 a year to keep up has 250,000, not 330,000, to pay interest, tax and owners with. For a business with heavy assets EBITDA flatters; the operating margin is the figure that charges for the wear.
Where is D&A in the accounts?
As a line in the income statement, or in the cash flow statement where it is added back to profit, or
in the notes on fixed assets.
What is the EBITDA margin?
EBITDA as a share of revenue, on its own page.
Is EBITDA defined in accounting standards?
No. It is a widely used figure outside the standards, which is why two companies’ EBITDA can be
built differently and a report should say how.
| Solve for | Rearranged | With the numbers | Comes to |
|---|---|---|---|
| EBIT | EBITDA | 330,000 | 250,000 |
| D&A | EBITDA | 330,000 | 80,000 |
| EBITDA | EBIT | 250,000 | 330,000 |
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