EBITDA

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The EBITDA or earnings before interest, taxes, depreciation, and amortization is used to measure a company’s profitability.

The formula looks like this

Revenue – Expenses (Except earnings before interest, taxes, depreciation, and amortization)

This figure gives us a simple version of profit and loss. How much did you make vs. how much did it cost you to make that. The problem is it excludes so many expenses that it does not act as a valid form of earnings.

Many companies will try to refer to EBITA as cash flow. It isn’t cash flow and should not be treated as such. Because it isn’t cash flow it is easy for a company to manipulate. So it should be used with many other indicators to determine if a company is a good buy.