EBITDA Ebitta. What? Many business owners hear the term EBITDA but do not really know what it means. We are attempting to help. Hope our attempt helps you in some way. God bless your small business. We are dedicated to helping small business succeed.
EBITDA is described as Earnings Before Interest, Taxes, Depreciation, and Amortization.
This metric is used to evaluate the performance of a company’s operations.
A Few Definitions
Depreciation: Depreciation expense is within the cost of goods sold (COGS) “operating expenses line item on the income statement”.
Amortization: Amortization expense is identical to the idea of depreciation. The difference is that the amortization expense causes an incremental reduction in the value of a company’s intangible assets.
EBITDA is a great tool for understanding a company’s underlying operating results. You can compare your business against similar businesses or competitors. It helps you to understand the impact on cash flow and capital.
Even though this is a great tool you still need to look at other financial ratios to help determine the health of your business model. Take time to better understand how cash flow works. Learn to read a Balance Sheet, Cash Flow Statement, and Profit & Loss Statement. These are incredibly powerful reports.
EBITDA is considered just one tool in financial analysis.