EBITDA is earnings before interest, taxes, depreciation, and amortization, a measure of results before those expenses.
Definition
EBITDA starts with earnings and adds back interest, income taxes, depreciation, and amortization under the chosen calculation method. Owners may see it in internal reporting, lending discussions, or a potential sale review. The starting earnings figure and treatment of nonoperating items should be stated, since financial statements may not present one standardized EBITDA line. Some analyses also show proposed adjustments, but those belong in a separately explained adjusted EBITDA calculation. EBITDA can help compare operating results before financing structure, taxes, and certain noncash expenses, yet it leaves out important costs and does not measure cash available to owners. It is not net income, operating cash flow, or a guarantee of debt capacity. Firms should be able to reconcile the figure to underlying statements and explain each adjustment. The financial metrics for civil engineering firms and how to value a civil engineering firm discuss its use in owner and valuation contexts.
How owners use it
- Review operating results before interest, taxes, depreciation, and amortization for a stated period.
- Reconcile the EBITDA figure to financial statements when sharing it with lenders or transaction reviewers.
- Example: Earnings of $180,000 plus $20,000 interest, $25,000 taxes, $10,000 depreciation, and $5,000 amortization equals EBITDA of $180,000 + $20,000 + $25,000 + $10,000 + $5,000 = $240,000.
- Separate ordinary EBITDA from adjusted EBITDA and document the rationale and amount for each proposed adjustment.
