Definition: EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation.

Example: EBITDA is an indicator of financial performance and is often used as a substitute for a company’s earning potential.

Formula:  EBITDA = Net Profit + Interest +Taxes + Depreciation + Amortisation

Business insight: EBITDA is often used to measure how young companies or companies that have recently been restructured are doing financially. Its importance lies in how it indicates a company’s financial performance while excluding non-operational factors like interest and taxes.

EBITDA is a determinant of the value of a business. It is a good marker for comparing companies within an industry or even more generally. For companies that require big investments initially to grow, EBITDA can help measure current business performance.