EBITDA stands for earnings before interest, tax, depreciation, and amortization. It is a financial metric used to evaluate a company’s profitability, and it is an alternative measure to net income.
There are two formulas that you can use to calculate EBITDA:
EBITDA = Net Income + Taxes + Interest Expense + Depreciation & Amortization
EBITDA = Operating Income + Depreciation & Amortization
EBITDA makes it easier to compare multiple companies against one another because it disregards financial structure, taxes, amortization, and depreciation. On the flipside, many do not like to use EBITDA because it can be easily manipulated to show false positive company performance.