A. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company’s financial performance that excludes certain non-cash expenses, such as interest, taxes, depreciation, and amortization.
EBITDA is calculated by taking a company’s net income and adding back interest, taxes, depreciation, and amortization expenses. This results in a measure of a company’s operating performance that excludes the impact of financing and accounting decisions.
EBITDA is often used as a measure of a company’s operating performance and is considered by many to be a better indicator of a company’s underlying financial performance than net income. This is because EBITDA excludes non-operating expenses such as interest, taxes, and non-cash expenses like depreciation and amortization.
The advantage is that this number is not affected by differences in depreciation policies across companies. This number can only be used when comparing companies in the same industry – you can’t compare EBITDA of a services company with a manufacturing company because the manufacturing company. The underlying assumption, even while comparing within the same industry, is that the nature and amount of fixed assets is roughly the same – this may or may not be true.
