EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)

Posted in Finance, Accounting and Economics Terms, Total Reads: 1942
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Definition: EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)

EBITDA is an acronym for Earnings before Interest, Tax, Depreciation and Amortization. EBITDA is equal to Revenue minus all operating expenses other than depreciation, interest and taxes. It is basically the operating cash flow but with an exception of depreciation and amortization. EBITDA may include other non-cash revenues and expenses but it is basically seen as a fund source to pay out interest, dividend and tax.

EBITDA can be calculated in 2 ways:

1. EBITDA=Revenue – Expenses (other than interest, depreciation, amortization and tax)

2. EBITDA=PAT + interest + depreciation + amortization + taxes

Example

Let us assume a FMCG company whose revenues are 1 billion $. Its COGS is 600 Million $ and other expenses are 100 Million $. So the EBITDA is 1000-600-100=300 Million $.

Let us also say the depreciation and amortization amounted to 50 million $. so this mean Profit is 1000-600-100-50=250 million $. Let us say Interests were 15 million $ means Profit becomes 235 Million $. Means PBT is 235 million $ and let us assume profit after tax is 210 million $. 

Then validating second formula 210+15+50+25=300 Million $. 

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