EBITDA

EBITDA means Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a commonly used measure intended to approximate operating performance before financing, tax, and certain non-cash accounting effects.

Why it matters

Executives, investors, and acquirers may use EBITDA to compare operating performance. Technology leaders may be asked how staffing, infrastructure, vendor contracts, and capitalization policies affect it.

Mental model

EBITDA starts from earnings and adds back interest, taxes, depreciation, and amortization. It is not the same as profit and is not the same as cash flow.

Limitations

• It ignores capital expenditure.
• It can hide working-capital pressure.
• Definitions of adjusted EBITDA may exclude additional costs.
• It should be interpreted alongside cash flow and the full P&L.