Invertext Online Technical Dictionary




Definition 1

The acronym of earnings before interest, tax, depreciation and amortisation. The success of EBIT (earnings before interest and tax) in creating a level playing-field for company earnings on which companies, particularly management, were not penalised for the financial structure of the company (a shareholder responsibility) or for the fact that the company was based in a country levying high taxes on company profits, led to a refinement of the model that removed two non-cash items, depreciation of tangible assets and amortisation of intangible assets. EBITDA thus became a standard measure of basic cash flow, and as such proved particularly popular with equities analysts, whose estimates of companies’ fundamental value are usually arrived at by discounting estimated free cash flows and EBITDA proved a useful starting point. It was also welcomed by banks, as a company’s EBITDA tells a bank how much money the company can count on to repay loans. EBITDA is frequently referred to as a company’s operating cash flow or its gross operating profit. EBITDA appears on company press releases and its filings with market regulators but not usually on the audited accounts, as EBITDA gives no information on a company’s financial and accounting policies.

Source: Invertext

Context: EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It is used for measuring wealth creation before depreciation and amortisation.


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