EBITDA is a widely recognised measurement of a companies performance. It allows you to assess a companies profitability and general performance without the need to take into consideration non-operating factors.

Why should it be used?

It’s simple – it’s a really simple view of a companies performance and takes away the complexities of detailed accounting statements. Quick and easy.

It’s a comparable measure – it can be used as a standarised measurement to compare or assess a companies performance, no matter what sector or geographical domain.

Operational focus – it allows a company measure it’s own performance by solely focusing on operational factors (essentially it doesnt take into consideration elements that are not under specific control such as accounting choices, interest etc).

2 ways to calculate…

There are two easy ways to calculate EBITDA based on either Net Profit, or Operating Profit:

EBITDA = Net Profit + Taxes + Interest Expense + Depreciation & Amortisation

EBITDA = Operating Profit + Depreciation & Amortisation