EBITDA Definition Bankrate.com Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content
EBITDA
EBITDA is an accounting term you should know. Bankrate explains. What is EBITDA
EBITDA — earnings before , taxes, depreciation, and — is a measure of a company’s profitability. As the acronym suggests, EBITDA represents a company’s net earnings before subtracting expenses from interest payments, taxes, depreciation, and amortization. This accounting concept is a proxy for , or how much a company earns from operations and present . Deeper definition
EBITDA is a somewhat controversial accounting measure that is used as a rough approximation of a company’s cash flow. EBITDA allows financial analysts and investors to broadly compare the profit potential of different companies. The measure erases the distortions that can creep into a company’s accounting statements from the effects of interest payments, tax impacts (and the political noise associated with taxes), the depreciation of assets, and different takeover histories by ignoring amortization of goodwill, leaving only total cash flow. Businesses structure their capital differently from one another, so one company may have a high debt burden from acquisitions or equipment that another company doesn’t have. Different companies pursue a wide variety of tax strategies. Minimizing these factors aids in comparison. However, EBITDA is never meant as a way of looking at a company’s actual profitability or the quality of its earnings. One argument against EBITDA as a performance indicator is that it does not account for changes in , a key measure of a company’s . Working capital fluctuates due to the impact of interest, taxes, and capital expenditures. EBITDA doesn’t need to be measured by the Securities and Exchange Commission’s accounting standards, the Generally Accepted Accounting Principles (GAAP), so it is not a required line item on a company’s financial statement. EBITDA has become much more common in recent years, although many firms list an adjusted EBITDA figure. The measure can be calculated by taking a company’s and adding back interest expense, taxes, depreciation, and amortization. Alternatively, it can be calculated by taking a company’s operating profit — EBIT, or earnings before interest and taxes — and adding depreciation and amortization. Bankrate offers an to help you manage monthly payments. EBITDA example
Two partners are looking to buy another portfolio company for their investment firm. One target, CraftCo, generated $100 million in revenue in the prior financial year, with $40 million of product expense and $20 million of operating expenditures. Amortization and depreciation expenditure amounted to $10 million, making for a net profit from operations of $30 million. CraftCo’s interest expense is $5 million, making $25 million in earnings before taxes. Assuming a tax rate of 20 percent, net income becomes $20 million after $5 million in tax expenditures. To arrive at EBITDA, the partners add operating profit to depreciation and amortization expenses ($30 million added to $10 million). CraftCo’s EBITDA of $40 million is higher than the other firm under consideration, so the partners enter negotiations to buy CraftCo. More From Bankrate
These low-priced stocks are highly speculative, and include some of the market’s smallest companies. While the terms sound complex, they’re really just ways to measure risk and return. Closed-end, open-end funds and ETFs may all seem the same, but what sets them apart? Your 30s can bring some big life events. We’ll show you how to save and invest in order to tackle your goals. While stocks may go up or down, this guide can help new investors avoid many of the market’s biggest pitfalls. Limit orders can protect you, especially with small stocks. Stocks allow anyone to own a stake in a company’s performance. Here’s how to invest in your health savings account and take advantage of all that HSAs have to offer. What do charging bulls and roaring bears have to do with investing? Here’s what it means to be bullish or bearish.