2016-12-21 00:00:00Finance and AccountingEnglishFind out about EBITDA (Earning Before Interest Taxes Depreciation and Amortization) and how it is used in the financial world.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/10/accountant-conducts-EBITDA-assessment.jpghttps://quickbooks.intuit.com/ca/resources/finance-accounting/small-business-terms-what-is-ebitda/Small Business Terms: What Is EBITDA?

# Small Business Terms: What Is EBITDA?

When you run a business, your financial health means everything to your success. One tool for understanding that financial status is EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a measure of a company’s profitability without taking into consideration the interest, taxes, depreciation, and amortization that you may have.

## What Is EBITDA in Business?

Business owners, lenders, and investors use EBIDTA to measure the productivity of a business by calculating how much it makes — its earnings — without considering real expenses that aren’t part of the production process. Expenses such as interest on loans, income taxes, depreciation of assets, and amortization of capital goods are among the excluded items. When you subtract items such as these, EBIDTA measures cash flow from operations effectively.

## What Is EBITDA in Finance?

Taking information from income statement line items, accountants and analysts calculate EBITDA.

## Calculating EBITDA

Here’s how to calculate EBITDA for your business using the formula stated.

• If your income statement shows your EBIT or operating profit is \$650,000, and
• Your depreciation is \$50,000, and
• Your amortization is \$20,000, then

EBIT (\$650,000) + Depreciation (\$50,000) + Amortization (\$20,000) = EBITDA (\$720,000). Since EBITDA is a measure of your profitability, the higher the number, the better for your business. A lower number means you’re making less profits, regardless of how you’re paying for your operations. A higher number means you’re able to efficiently generate income.

## Using EBITDA

Investors use EBITDA as a sign of operating profitability when comparing businesses in different tax brackets or within a single industry. Accountants use other factors in addition to EBITDA when assessing overall business health. They include factors such as debt payments, capital expenses, working capital, and net income. Consulting your accountant regularly helps keep you informed about the state of your business and strategies for growth.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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