BQLearning is a show that seeks to demystify financial markets, economic theories, legal processes and political structures. This series focuses on financial market jargon.
Ebitda stands for earnings before interest, taxes, depreciation, and amortisation. It measures the operating profitability of the company by deducting operating expenses from total revenue.
It does not take into consideration the cost of debt and tax incidence or any non-cash expenditures like depreciation and amortisation. Ebitda is also used to derive the Ebitda margin, which is useful for comparing different companies in the same industry.
Anupam Gupta, independent consultant at Aavan Research, explains how Ebitda works, how it is calculated and how it can be used to judge a company’s performance.