EBITDA

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Related Articles Amortization Capital Expenditure (CapEx) Free Cash Flow Generally Accepted Accounting Principles (GAAP)

Top Contributors Tracey Shi

EBITDA stands for "Earnings before interest, taxes, depreciation, and amortization. Used as a proxy for the company's profitability and general financial performance, EBITDA can be calculated using data from a company's income statement.

EBITDA differs from the operating cash flow by excluding payments for taxes or interest as well as changes in working capital. EBITDA also differs from free cash flow because it excludes cash requirements for replacing capital assets (capex). EBITDA is used when evaluating a company's ability to earn a profit, and it is often used in stock analysis.

It is important to note that EBITDA is not defined according to the Generally Accepted Accounting Principles (GAAP), a standard set of guidelines for financial accounting that regulate the preparation of financial statements. As such, a company is free to calculate its EBITDA however it wishes to, and many companies change the components of their EBITDA calculations from one reporting period to the next.

Mathematically:

EBITDA = Operating Revenue – Operating Expenses + Other Revenue

[edit] Applications

For example, the ratio of EBITDA as a percentage of sales is a measurement of how efficiently a company operates: the higher the EBITDA-to-sales ratio, the higher the company's profitability.

Generally speaking, EBITDA is most useful when used to evaluate large, established companies with substantial assets, or for companies that have a sizeable portion of their financing through debt. EBITDA is much less useful for evaluating smaller companies without significant debt.

EBITDA

Company	2004	2005	2006	2007	2008
British Sky Broadcasting Group (BSY)	Add	Add	Add	Add	Add
HLTH (HLTH)	Add	Add	Add	Add	Add
Level 3 Communications (LVLT)	510	509	682	824	Add
Merix (MERX)	Add	Add	Add	Add	Add
MWI Veterinary Supply (MWIV)	Add	Add	Add	Add	Add
TTM Technologies (TTMI)	Add	Add	Add	Add	Add

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