Indian Company Master Data Made Simple

EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization

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Quick Summary

EBITDA shows a company's operating cash flow by adding back non-cash expenses to EBIT.

EBITDA is a measure of a company's overall financial performance. It represents earnings before deducting interest expenses, tax expenses, depreciation, and amortization.

EBITDA Formula

EBITDA = EBIT + Depreciation + Amortization

Or

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Example

If a company has:

  • EBIT: ₹20 lakhs
  • Depreciation: ₹5 lakhs
  • Amortization: ₹2 lakhs

Then EBITDA = ₹20 + ₹5 + ₹2 = ₹27 lakhs

Uses of EBITDA

  • Proxy for operating cash flow
  • Valuation metric (EV/EBITDA ratio)
  • Comparing companies with different asset ages
  • Assessing debt repayment capacity

Limitations

  • Ignores capital expenditure requirements
  • Can mask financial problems
  • Not a GAAP/Ind AS metric
  • Working capital changes not considered

Key Points

  • Adds depreciation and amortization back to EBIT
  • Proxy for operating cash flow
  • Used in EV/EBITDA valuation multiple
  • Popular in M&A and investment analysis
  • Not an Ind AS/GAAP measure

Frequently Asked Questions

Is EBITDA the same as cash flow?

Why do investors use EBITDA?