EBITDA.
In plain English
EBITDA takes operating profit and adds back depreciation and amortization, the non-cash charges that spread past spending across future years. Because it sits above interest and tax, it strips out how a company is funded and where it is taxed, which makes businesses easier to compare across borders and capital structures. Private equity buyers and lenders size deals on multiples of it. It is not defined under standard accounting rules, so companies adjust it in their own ways and the adjusted version can be generous. Treating it as cash flow is where most of the trouble starts.
01Why it matters
EBITDA is the number most deals and loan covenants are written against, so knowing what it leaves out tells you what the headline multiple is quietly ignoring.
02The math, step by step
Operating income is $300 million. Depreciation is $110 million and amortization is $40 million. $300 million plus $150 million gives EBITDA of $450 million, half again the operating profit figure.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
EBITDA ignores interest, taxes, working capital swings, and capital spending, all of which consume real cash. A company with heavy equipment needs can post strong EBITDA and negative free cash flow every single year.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice