EBITDA starts from earnings and adds back interest, tax, depreciation, and amortisation. Managers and analysts use it as a rough view of operating performance that ignores capital structure and some non-cash charges. It is not a cash figure and it is not a regulated profit number, so it can be stretched or misused.
Key takeaways
- EBITDA ignores real costs such as interest, tax, and eventual asset replacement.
- Useful for comparing similar firms, weak as a standalone valuation gospel.
- Always reconcile EBITDA talk with free cash flow and net profit.
- Heavy capital spending businesses can look fine on EBITDA while burning cash.
