abbr.
earnings before interest, taxes, depreciation, and amortization
On this page
|
Featured Videos:
|
TechEncyclopedia:
EBITDA |
(Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become widely used in high tech and other industries whenever it is desired to disclose more favorable numbers to the public at the moment.
Download Computer Desktop Encyclopedia to your PC, iPhone or Android.
Barron's Business Dictionary:
Earnings before interest, taxes, depreciation and amortization |
| Eating (A Competitor’s) Lunch, Easy Money, Easement | |
| Echelon, Ecology, Econometrics |
Barron's Real Estate Dictionary:
Earnings before interest, taxes, depreciation and amortization |
| Eaves, Eastlake House | |
| Ecology, Economic Base |
Investopedia Financial Dictionary:
Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA |
An indicator of a company's financial performance which is calculated in the following EBITDA calculation: 
EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.
Investopedia Says:
This is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.
EBITDA first came into common use with leveraged buyouts in the 1980s, when it was used to indicate the ability of a company to service debt. As time passed, it became popular in industries with expensive assets that had to be written down over long periods of time. EBITDA is now commonly quoted by many companies, especially in the tech sector - even when it isn't warranted.
A common misconception is that EBITDA represents cash earnings. EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings. When using this metric, it's key that investors also focus on other performance measures to make sure the company is not trying to hide something with EBITDA.
Related Links:
This measure has its benefits, but it can also present earnings through rose-colored glasses. A Clear Look At EBITDA
This measure has a bad rap, but it's still a valuable tool when used appropriately. EBITDA: Challenging The Calculation
To spot the signs of earnings manipulation, you need to know the different ways companies can inflate their figures. Cooking The Books 101
What's the difference between EBITDA, EBITDAR and EBITDARM?
Abbreviations:
EBITDA |
| Meaning | Category |
| Earnings Before I Tricked the Dumb Auditors | Miscellaneous->Funnies |
| Earnings Before Interest Tax And Depreciation And | Miscellaneous->Unfiled |
| Earnings Before Interest Taxation Depreciation And Amortization | Miscellaneous->Unfiled |
| Earnings Before Interest, Taxes, Depreciation, and Amortization | Business->Accounting Business->Stock Exchange |
| Expenses Before Income Tax And Depreciation Allowance | Miscellaneous->Unfiled |
Click here to submit an acronym.
Wikipedia on Answers.com:
Earnings before interest, taxes, depreciation and amortization |
|
|
This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (May 2009) |
| Accountancy | |
|---|---|
| Key concepts | |
| Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow forecasting · Chart of accounts · Journal · Special journals · Constant item purchasing power accounting · Cost of goods sold · Credit terms · Debits and credits · Double-entry system · Mark-to-market accounting · FIFO and LIFO · GAAP / IFRS · General ledger · Goodwill · Historical cost · Matching principle · Revenue recognition · Trial balance | |
| Fields of accounting | |
| Cost · Financial · Forensic · Fund · Management · Tax (U.S.) | |
| Financial statements | |
| Balance sheet · Cash flow statement · Statement of retained earnings · Income statement · Notes · Management discussion and analysis · XBRL | |
| Auditing | |
| Auditor's report · Financial audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act | |
| Accounting qualifications | |
| CA · CPA · CCA · CGA · CMA · CAT · CFA · CIIA · IIA · CTP | |
EBITDA (/iːbɪtˈdɑː/,[1] /əˈbɪtdɑː/,[2]) or /ˈɛbɪtdɑː/[3] is an acronym for earnings before interest, taxes, depreciation, and amortization[4]. It is a non-GAAP metric that is measured exactly as stated. All interest, tax, depreciation and amortization entries in the income statement are reversed out from the bottom-line net income. It purports to measure cash earnings without accrual accounting, canceling tax-jurisdiction effects, and canceling the effects of different capital structures.
EBITDA differs from the operating cash flow in a cash flow statement primarily by excluding payments for taxes or interest as well as changes in working capital. EBITDA also differs from free cash flow because it excludes cash requirements for replacing capital assets (capex).
EBITDA margin refers to EBITDA divided by total revenue. EBITDA margin measures the extent to which cash operating expenses use up revenue.
|
Contents
|
EBITDA is widely used in loan covenants. The theory is that it measures the cash earnings that can be used to pay interest and repay the principal. Since interest is paid before income tax is calculated, the debtholder can ignore taxes. They are not interested in whether the business can replace its assets when they wear out, therefore can ignore capital amortization and depreciation.
There are two EBITDA metrics used.
The ratios can be customized by reducing Debt by any cash on the balance sheet or by deducting maintenance CapEx from EBITDA to form a measure closer to free cash flow.
|
|
This section is written like a personal reflection or essay rather than an encyclopedic description of the subject. Please help improve it by rewriting it in an encyclopedic style. (October 2009) |
Public investors' use of EBITDA arose from their perception that accountants' measure of profits, using accrual accounting was manipulated, that a measure of cash earnings would be more reliable.[citation needed]
It is true that PE can use this metric. And it is true the professional analysts using detailed discounted cash flow models should exclude all non-cash expenses.
EBITDA does NOT measure cash earnings because it omits all the tax expenses even though a good portion are cash payments. It also fails to correct for other non-cash expenses, e.g. warranty expense, bad debt allowance, inventory write-down, stock options granted.[citation needed]
It does not include the cash flows from changes in working capital. Suppose a business sells all its opening inventory in a year and replaces the same number of units but at a higher price because of inflation. The profits of a company using FIFO inventory valuation will not include that extra cash cost. Suppose the business is expanding and need to stock a larger number of units. That additional cash cost is not in anyone's EBITDA measure.
When using this metric to replace accountant's earnings it presumes to measure an economic profit. But any economic profit must include the cost of capital and the degradation of long-life assets. This metric simply ignores both. Warren Buffett famously asked, "Does management think the tooth fairy pays for capital expenditures?" Depreciation may not be exact but it is the most practical method available. It succeeds in equating the positions of companies using three different ways to finance long-life assets. It can be interpreted as:[citation needed]
When comparing businesses with non profits, their potential to make profit is more important than their Net Loss. Since taxes on losses will be misleading in this context, taxes can be ignored. Capital expenditures and their related debt result in fixed costs. These are of less importance than the variable costs that can be expected to grow with increasing sales volume, in order to cover the fixed costs. So depreciation and interest costs are of less importance. It is likely that an unprofitable business is burning cash (has a negative cash flow), so investors are most concerned with "how long the cash will last before the business must get more financing" (resulting in debt or equity dilution).
EBITDA is not used as a valuation metric in these circumstances. It is a starting point on which future growth is applied and future profitability discounted back to the present. Equity owners only benefit from net profits, after all the expenses are paid.[citation needed]
During the dot com bubble companies promoted their stock by emphasising either EBITDA or pro forma earnings in their financial reports, and explaining away the (often poor) "income" number. This would involve ignoring one-time write-offs, asset impairments and other costs deemed to be non-recurring. Because EBITDA (and its variations) are not measures generally accepted under U.S. GAAP, the U.S. Securities and Exchange Commission requires that companies registering securities with it (and when filing its periodic reports) reconcile EBITDA to net income in order to avoid misleading investors.
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
| Ebidta (finance term) | |
| Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs | |
| Penn National Gaming, Inc. |
| How do you find the earnings before interest? Read answer... | |
| What is earning interest on interest called? Read answer... | |
| What is earning interest on interest? Read answer... |
Copyrights:
![]() |
![]() | American Heritage Dictionary. The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2007, 2000 by Houghton Mifflin Company. Updated in 2007. Published by Houghton Mifflin Company. All rights reserved. Read more |
![]() |
![]() | TechEncyclopedia. THIS DEFINITION IS FOR PERSONAL USE ONLY. All other reproduction is strictly prohibited without permission from the publisher. © 1981-2012 The Computer Language Company Inc. All rights reserved. Read more |
![]() | Barron's Business Dictionary. Dictionary of Business Terms. Copyright © 2007 by Barron's Educational Series, Inc. All rights reserved. Read more | |
![]() | Barron's Real Estate Dictionary. Dictionary of Real Estate Terms. Copyright © 2008 by Barron's Educational Series, Inc. All rights reserved. Read more | |
![]() | Investopedia Financial Dictionary. Copyright ©2010, Investopedia.com - Owned and Operated by Investopedia US, A Division of ValueClick, Inc. All rights reserved. Read more | |
![]() | Abbreviations. STANDS4.com - The source for acronyms and abbreviations. Copyright © 2004-2012 STANDS4 LLC. All rights reserved. Read more | |
![]() |
![]() | Wikipedia on Answers.com. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article Earnings before interest, taxes, depreciation and amortization. Read more |
Mentioned in