profitability
EBITDA EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash generation that strips out financing and accounting decisions.
Formula
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
How to Interpret
EBITDA lets you compare companies regardless of their capital structure, tax jurisdiction, or depreciation methods. But it's easily manipulated and ignores real cash costs like capex — which is why R40 prefers FCF.
Why It Matters
Popular in private equity and M&A for company comparisons. But Charlie Munger called it "bullshit earnings" because it pretends capital expenditures don't exist. Use it for quick comparisons, but verify with FCF.
Example
Start with $50M of net income, then add $4M of interest, $10M of taxes, $8M of depreciation, and $3M of amortization. EBITDA is $75M.