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EBITDA
(Earnings Before Interest, Taxes, Depreciation & Amortization)
EBITDA measures core profitability by excluding non-operational costs: Earnings Before Interest, Taxes, Depreciation, and Amortization. Calculated as: EBIT + Depreciation + Amortization.
Wall Street favors EBITDA for comparing firms with different capital structures (debt levels) or CAPEX cycles. A $10M EBITDA with $2M D/E interest shows stronger coverage than $8M EBITDA with $1M interest. Critics argue it overstates cash flow (ignores working capital needs). The SEC requires reconciliation to GAAP net income. Private equity uses EBITDA multiples (e.g., 8x) to value LBO targets. ROA and ROE provide complementary perspectives.
Wall Street favors EBITDA for comparing firms with different capital structures (debt levels) or CAPEX cycles. A $10M EBITDA with $2M D/E interest shows stronger coverage than $8M EBITDA with $1M interest. Critics argue it overstates cash flow (ignores working capital needs). The SEC requires reconciliation to GAAP net income. Private equity uses EBITDA multiples (e.g., 8x) to value LBO targets. ROA and ROE provide complementary perspectives.