Crash Course in Accounting and Financial Statement Analysis, Second Edition

Earnings before Interest, Taxes, Depreciation, and Amortization

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a measure of profitability (like net income and gross profit) designed to allow analysts to compare profitability between companies and industries.

Since EBITDA measures profit before the impact of interest expense, tax expense, and depreciation and amortization expense with varying levels of financial leverage (debt), operating under different tax laws, EBITDA facilitates an “apples-to-apples” comparison between companies and different depreciation methods and assumptions.

Sample Income Statement Revenues $100 – Cost of Goods Sold 20 – SG&A (incl. R&D) 15 EBITDA 65 – D&A 10 EBIT 55 – Interest Expense 5 Taxes 20 Net Income 30 EBITDA Sales – COGS – SG&A – R&D Or Net Income + Taxes + Interest Expense + D&A