EBITDA
Earnings before interest, taxes, depreciation and amortisation — operating cash earnings proxy.
Definition
EBITDA strips out the effects of capital structure (interest), tax jurisdiction (taxes) and prior investment (D&A) to focus on core operating profitability. It is the favourite multiple in M&A and the most widely cited operating metric outside accounting purists. Critics — most famously Charlie Munger — call it 'bullshit earnings' because it ignores real depreciation and reinvestment needs; it should never be used in isolation, but it is invaluable for comparing operating businesses with different capital structures.
Formula
EBITDA = Revenue - COGS - SG&A
= EBIT + D&A
= Net Income + Interest + Taxes + D&A
EBITDA Margin = EBITDA / RevenueWorked example
A company reports revenue $5B, COGS $2.5B, SG&A $1.5B, so EBIT = $1B. Add D&A of $300M: EBITDA = $1.3B. EBITDA margin = 1.3 / 5 = 26%. Sector median is 22% — the company is moderately more efficient than peers.
How ARIA Analyst uses it
ARIA tracks EBITDA margin and trend in the Profitability module and uses EBITDA in the EV/EBITDA peer comparison engine.
Related terms
EV/EBITDA
Enterprise value divided by EBITDA — a capital-structure-neutral cash earnings multiple.
Free Cash Flow (FCF)
Cash from operations minus capital expenditures — the cash a business actually generates for owners.
Gross Margin
Revenue minus cost of goods sold, divided by revenue — the pricing-power signal.
Return on Invested Capital (ROIC)
NOPAT divided by total invested capital — true return on operating capital, independent of capital structure.
See EBITDA in action on any asset
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