EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
It is used as a rough measure of operating performance before financing, taxes, and major non-cash charges.
Why people use it:
- easier comparison across firms with different debt or tax profiles
- often used in valuation multiples
Limitation:
- EBITDA is not the same as cash flow because it ignores working-capital needs, capital spending, and some real costs.
Most often seen in an Income Statement discussion.