The EBIT is a business ratio used to calculate the operating result of a company. (In contrast to net profit or net income, taxes and interest are not taken into account). EBITDA also takes into account depreciation of property, plant and equipment and amortization of intangible assets. In this article, you will learn what EBITDA is, how it is calculated and what the key figure can be used for.
What is EBITDA?
EBITDA is earnings before interest, taxes, depreciation and amortization. The abbreviation stands for Earnings Before Interest, Taxes, Depriciation and Amortization.
What is the purpose of EBITDA?
EBITDA is a business indicator that represents the result of the company's pure activities, excluding interest and taxes as well as all depreciation and amortization. Since interest costs, interest income, taxes and depreciation and amortization have little to do with the company's direct activities, depend in part on external factors and say little about the core business, EBITDA is very well suited to evaluating the profitability of the company's activities.
Formula and calculation
To calculate EBITDA, EBIT is first used. (For more information on the calculation of EBIT, please refer to our article on EBIT.) Depreciation of property, plant and equipment and amortization of intangible assets are then added.
Intangible assets may, for example, be goodwill, patents, utility models or similar.
The formula for calculating EBITDA is:
EBITDA = EBIT + depreciation and amortization - write-ups
respectively
EBITDA = Net income + Interest expense - Interest income + Tax expense - Tax income + Depreciation and amortization - Write-ups