EBITDA, which stands for earnings before interest, taxes, depreciation and amortization, helps evaluate a business’s core profitability.
For example, a business with $1.5 million in revenue, $800,000 in operating expenses, $60,000 in interest, $90,000 in taxes, and $80,000 in depreciation has EBITDA of $650,000 — a figure lenders often use to measure cash-generating ability before financing costs.
Why it matters: It is the gold standard for comparing the operational profitability and valuation of companies by stripping out tax and financing differences.
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