What is EBITDA?

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EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a measure of a company's core operational profitability — what the business earns from its operations before accounting for capital structure, tax, and non-cash charges.

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The formula is: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortisation. Alternatively, it can be derived from operating profit (EBIT) by adding back depreciation and amortisation.

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Why EBITDA is widely used

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EBITDA is used because it strips out factors that can vary significantly across companies and industries — financing decisions (interest), tax jurisdictions (taxes), and asset-heavy versus asset-light business models (depreciation). What remains is closer to the cash-generating power of the underlying operations.

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This makes EBITDA useful for comparing companies across geographies or capital structures, for valuation (enterprise value is often expressed as a multiple of EBITDA), and for tracking operational performance over time.

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What EBITDA doesn't tell you

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EBITDA is not cash flow. It excludes working capital movements — so a business with growing receivables or slow payables can show strong EBITDA while generating weak cash. It also excludes capex, which is a real cash outflow for asset-intensive businesses. Critics of EBITDA argue it can flatter the financial picture, which is why most sophisticated finance teams look at it alongside free cash flow and other metrics.

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For CFOs, EBITDA is one number in a dashboard — not the only one.

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Related: Financial Close · Management Reporting · FP&A · Revenue Recognition