EBITDA — earnings before interest, taxes, depreciation, and amortisation — strips out financing costs, tax jurisdiction, and non-cash depreciation/amortisation charges to leave a rougher proxy for the cash a business generates from operations. It's most useful as the denominator in EV/EBITDA, where it lets you compare companies with very different capital structures and accounting choices.
The formula
Operating Income+Depreciation & Amortisation
= EBITDA
Why it matters
- —Removing interest and tax makes it easier to compare companies with different debt loads or tax jurisdictions on operating performance alone.
- —It's the standard denominator for EV/EBITDA, the most widely used multiple in M&A and credit analysis.
- —It is not cash flow — depreciation is added back, but the assets it represents still wear out and eventually need replacing.
How to read it
| Margin < 10% | Thin operating profitability before financing and accounting adjustments |
| Margin 10%–25% | Typical for most industries |
| Margin > 25% | High operating leverage — common in software and platforms |