Earnings before Interest, Taxes, Depreciation, and Amortization: History
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A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, pronounced /iːbɪtˈdɑː/, /əˈbɪtdɑː/, or /ˈɛbɪtdɑː/) is an accounting measure calculated using a company's earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company's current operating profitability (i.e., how much profit it makes with its present assets and its operations on the products it produces and sells, as well as providing a proxy for cash flow). Though often shown on an income statement, it is not considered part of the Generally Accepted Accounting Principles (GAAP) by the SEC.

  • amortization
  • depreciation
  • profitability

1. Usage

Although EBITDA is not a financial measure recognized in generally accepted accounting principles, it is widely used in many areas of finance when assessing the performance of a company, such as securities analysis.[1] It is intended to allow a comparison of profitability between different companies, by discounting the effects of interest payments from different forms of financing (by ignoring interest payments), political jurisdictions (by ignoring tax), collections of assets (by ignoring depreciation of assets), and different takeover histories (by ignoring amortization often stemming from goodwill). EBITDA is a financial measurement of cash flow from operations that is widely used in mergers and acquisitions of small businesses and businesses in the middle market. It is not unusual for adjustments to be made to EBITDA to normalize the measurement allowing buyers to compare the performance of one business to another.[2] These adjustments can include but are not limited to bad debt expense, any legal settlements paid, charitable contributions and salaries of the owner or family members.[3]

A negative EBITDA indicates that a business has fundamental problems with profitability and with cash flow. A positive EBITDA, on the other hand, does not necessarily mean that the business generates cash. This is because EBITDA ignores changes in working capital (usually needed when growing a business), in capital expenditures (needed to replace assets that have broken down), in taxes, and in interest.

Some analysts do not support omission of capital expenditures when evaluating the profitability of a company: capital expenditures are needed to maintain the asset base which in turn allows for profit. Warren Buffett famously asked, "Does management think the tooth fairy pays for capital expenditures?"[4]

2. Margin

EBITDA margin refers to EBITDA divided by total revenue (or "total output", "output" differing "revenue" by the changes in inventory).[5]

3. Misuse

Over time, EBITDA has mostly been used as a calculation to describe the performance in its intrinsic nature, which means ignoring every cost that does not occur in the normal course of business. Although this simplification can be quite useful, it is often misused, since it results in considering too many cost items as unique, and thus boosting profitability. Instead, in case these sorts of unusual costs get downsized, the resulting calculation ought to be called "adjusted EBITDA" or similar.[6]

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.[4]

4. Variations

Example statement of income (figures in thousands)[7]
     Sales revenue $20,438
     Cost of goods sold $7,943
Gross Profit $12,495
Operating expenses
     Selling, general and administrative expenses $8,172
     Depreciation and amortization $960
     Other expenses $138
     Total operating expenses $9,270
Operating profit $3,225
     Non-operating income $130
Earnings before Interest and taxes (EBIT) $3,355
     Financial income $45
Income before interest expense (IBIE) $3,400
     Financial expense $190
Earnings before income taxes (EBT) $3,210
     Income taxes $1,027
Net income $2,138

4.1. EBITD

Earnings before interest, taxes, and depreciation (EBITD or EBDIT), sometimes called profit before depreciation, interest, and taxes (PBDIT), is an accounting metric.[8] Some people find it useful to know this value for a business. On the other hand, some businesses may emphasize this value in publicity or reports to investors, instead of the GAAP or other standard earnings or income value.

In finance, EBITD is sometimes used in capital budgeting calculations as a starting point in order to create templates that can be easily changed to observe the effects of changing variables (such as tax rates, allowances for inflation or changes in depreciation methods) on a net present value (NPV) or internal rate of return (IRR) value, and thus, the viability of a potential investment or project.[9]

4.2. EBITA

Earnings before interest, taxes, and amortization (EBITA) refers to a company's earnings before the deduction of interest, taxes, and amortization expenses.[10] It is a financial indicator used widely as a measure of efficiency and profitability.

EBITA margin can be calculated by taking the Profit Before Taxation (PBT/EBT) figure as shown on the Consolidated Income Statement, and adding back Net Interest and Amortization. Often, Amortization charges are zero and therefore EBIT = EBITA.

EBITA has been cited by buyside investors as a useful metric to be used as a replacement for, or in conjunction with, EBITDA multiples, as corporations continue to present increasing levels of intangible-based amortization.


Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) is a non-GAAP metric that can be used to evaluate a company's financial performance.

EBITDAR can be of use when comparing two companies in the same industry with different structure of their assets. For example, consider two nursing home companies: one company rents its nursing homes and the other owns its homes and thus does not pay rent but instead has to make capital expenditures that are not necessarily of the same order of magnitude as the depreciation. By looking at EBITDAR, one can compare the efficiency of the companies' operations, without regard to the structure of their assets.

Some companies use an EBITDAR where "R" indicates "Rinel Costs". While this analysis of profits before restructuring costs is also helpful, such a metric should better be termed "adjusted EBITDA" or "AEBITDA". EBITDAR is also commonly used for hotel companies.[11]

Related to EBITDAR is "EBITDAL", "rent costs" being replaced by "lease costs".


Earnings Before Interest, Depreciation, Amortization and Exploration (EBIDAX) is a non-GAAP metric that can be used to evaluate the financial strength or performance of oil, gas or mineral company.[12]

Costs for exploration are varied by methods and costs. Removal of the exploration portion of the balance sheet allows for a better comparison between the energy companies.

4.5. OIBDA

Operating income before depreciation and amortization (OIBDA) refers to an income calculation made by adding depreciation and amortization to operating income.

OIBDA differs from EBITDA because its starting point is operating income, not earnings. It does not, therefore, include non-operating income, which tends not to recur year after year. It includes only income gained from regular operations, ignoring items like FX changes or tax treatments.

Historically, OIBDA was created to exclude the impact of write-downs resulting from one-time charges, and to improve the optics for analysts comparing to previous period EBITDA. An example is the case of Time Warner, who shifted to divisional OIBDA reporting subsequent to write downs and charges resulting from the company's merger into AOL.

In each case OIBDA, OIBTDA, and EBITDA are proxies for analyzing the cash a firm can generate from operations regardless of capital structure and taxes, and is therefore very useful as a tool in designing restructurings, mergers and acquisitions, and recapitalizations, and for valuing firms on a TEV (total enterprise value) basis.


Earnings before interest, taxes, depreciation, amortization, and coronavirus (EBITDAC) is a non-GAAP metric that has been introduced following the global COVID-19 pandemic. On 13 May 2020, the Financial Times mentioned that German manufacturing group Schenck Process was the first European company to use the term in their quarterly reporting.[13] The company had added back €5.4m of first-quarter 2020 profits that it said it would have made were it not for the hit caused by 'missing contribution margin and cost absorption reduced by direct financial state support received majorly in China so far'.[14]

Other companies picked up this EBITDAC measure as well, claiming the state-mandated lockdowns and disruptions to the supply chains distort their true profitability, and EBITDAC would show how much these companies believe they would have earned in the absence of the coronavirus.

The content is sourced from: https://handwiki.org/wiki/Finance:Earnings_before_interest,_taxes,_depreciation,_and_amortization


  1. Shaul, Deborah (2017-11-03) (in en). The Business Textbook. Balboa Press. ISBN 978-1-5043-3501-0. https://books.google.com/books?id=rYY-DwAAQBAJ&pg=PT168. 
  2. "Adjusted EBITDA Definition - Free Tool - ExitPromise". April 4, 2014. http://exitpromise.com/adjusted-ebitda/. 
  3. "Error: no |title= specified when using {{Cite web}}". https://www.lutz.us/understanding-ebitda-and-normalizing-adjustments/=.
  4. "Top Five Reasons Why EBITDA Is A Great Big Lie". Forbes. December 28, 2011. https://www.forbes.com/sites/tedgavin/2011/12/28/top-five-reasons-why-ebitda-is-a-great-big-lie/. Retrieved November 15, 2012. 
  5. "What is EBITDA?". BusinessNewsDaily. May 9, 2013. http://www.businessnewsdaily.com/4461-ebitda-formula-definition.html. Retrieved November 15, 2014. 
  6. "EBITDA Calculations and Reconciliation". http://www.tigerlogic.com/tigerlogic/company/press/03FY12/reportd.html. Retrieved February 8, 2014. 
  7. Bodie, Zvi; Kane, Alex; Marcus, Alan (2004). Essentials of Investments. McGraw Hill. p. 452. ISBN 9780072510775. 
  8. NASDAQ: Earnings before interest, taxes, and depreciation (EBITD) http://www.nasdaq.com/investing/glossary/e/earnings-before-interest-taxes-and-depreciation
  9. Frino, Hill & Chen (2009), "Introduction to Corporate Finance" 4th ed.
  10. "EBITA". http://www.investopedia.com/terms/e/ebita.asp. Retrieved November 30, 2014. 
  11. . https://marketrealist.com/2014/10/why-ev-ebitdar-multiple-best-valuing-hotel-companies/. 
  12. "Earnings Before Interest, Depreciation, Amortization and Exploration (EBIDAX)" (in en-US). Investopedia. June 28, 2010. https://www.investopedia.com/terms/e/ebidax.asp. 
  13. "Pandemic spawns new reporting term ‘ebitdac’ to flatter books" (in en-UK). The Financial Times. May 13, 2020. https://www.ft.com/content/5467518c-1b68-4712-9e74-e7cc949d8002. 
  14. "Investor Relations: Financial Reports 2020" (in en-UK). Schenk Group GmbH. May 12, 2020. https://www.schenckprocess.com/investor-relations?pid=10. 
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