EBITDA is earnings before interest, tax, depreciation and amortisation. It focuses on operating performance before financing and certain non-cash charges.
Margin
EBITDA margin = EBITDA ÷ revenue. Track the trend and compare with relevant peers rather than treating one margin as universally good.
Why it is used
It can help compare operating performance across companies with different financing and depreciation structures.
What it misses
EBITDA does not subtract capital expenditure, working-capital needs, interest or taxes. A business can have strong EBITDA and weak free cash flow.
Research habit
Always connect EBITDA with operating cash flow, capex, debt and return on capital.
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Deep research: what EBITDA includes—and excludes
EBITDA is earnings before interest, tax, depreciation and amortisation. It can be useful for comparing operating performance, but it is not cash flow.
Why depreciation matters
Depreciation is non-cash in the current accounting period, but the underlying assets eventually need maintenance or replacement. Ignoring that economic cost can overstate cash-generating power.
EBITDA margin
EBITDA margin = EBITDA ÷ revenue. Track its direction and the business drivers behind changes rather than treating a high margin as automatically superior.
EBITDA vs EBIT
EBIT includes depreciation and amortisation. In asset-intensive businesses, the difference can be economically important.
EBITDA and enterprise value
EV/EBITDA is commonly used when comparing businesses with different financing structures. It still requires care around leases, capital intensity and maintenance capex.
EBITDA checklist
- ☐ Definition verified
- ☐ Margin trend understood
- ☐ Depreciation intensity considered
- ☐ Maintenance capex considered
- ☐ Debt and leases considered
- ☐ Cash conversion checked