Definition – What is EBITDA?
EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) is a measurement of profitability of a firm.
Formula – How to calculate EBITDA
EBITDA (simple) = Operating Profit + Depreciation Expense + Amoritization Expense
EBITDA (extended) = Net Profit + Taxes + Interest + Deprecation Expense + Amortization Expense
(Simple) A company has an operating profit of $7,000, depreciation expense of $1,000, and amortization of expense of $1,500.
EBITDA (simple) = $7,000 + $1,000 + $1,500 = $9,500
(Extended) A company has a net profit of $4,500, interest expense of $2,500, taxes of $3,500, depreciation expense of $1,000, and amortization expense of $1,500.
EBITDA (extended) = $4,500 + $2,500 + $3,500 + $1,000 + $1,500 = $13,000
Sources and more resources
- Houston Chronicle – Difference between EBIT and Profit Before Taxes – Some of the differences between EBIT and Profit before taxes.
- Wikipedia – Earnings before interest, taxes, depreciation, and amortization – Wikipedia’s entry on EBITDA.
- How Stuff Works – What is EBITDA? – A quick introduction to EBITDA.
- Accounting Tools – What is EBITDA? – The formula for EBITDA.
- Investopedia – EBITDA – Earnings before interest, taxes, depreciation, and amortization – An introduction to EBITDA.