EBITDA

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Definition

EBITDA is an abbreviation for earnings before interest, taxes, depreciation, and amortization.

Investors often use EBITDA as a starting point for discounted cash flow analysis or to observe the performance of a business separately from its capital structure (debt vs equity financing structure).

Though EBITDA does form an excellent basis for cash flow analysis, some investors argue that it is a misleading measure since depreciation expenses are a real cost - old property, plant and equipment must eventually be replaced if a business plans to continue operations using those assets.

Formula

EBITDA = Net Income + Interest Expense + Tax Expense + Depreciation Expense + Amortization Expense

(All of the expenses are absolute values)

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