Understanding EBITDA

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of the efficiency of a company's revenues before the payment of financial expenses, taxes, depreciation and amortization. It is a measure used by investors and analysts to assess a company's health and its ability to generate profits.

It is a kind of alternative measure to net income, giving the reader a more complete picture of the cash flows a company generates. EBITDA does not take into account certain financial, tax and accounting charges that can have a significant impact on a company's balance sheet.

By comparing a company's net cash flow with its net cash flow before interest, taxes, depreciation and amortization, EBITDA enables analysts to see whether net income is artificially inflated by non-recurring adjustments.

As a result, EBITDA is a useful measure of a company's cash flow, performance and profitability that can provide valuable information for investors and analysts alike. EBITDA ratios can be used to compare industrial companies or companies in the same sector.