EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This key financial metric is used to assess a company’s operating profitability and provides a clear picture of the cash earnings from its core business, without being affected by financing or accounting-related depreciation and amortization.

What does EBITDA show?

EBITDA shows how much the company earns from its operations, excluding tax considerations, financing structure, and depreciation of assets.

This makes the key figure particularly useful when you want to:

compare operating income among companies
analyze operational performance
assess financial health without accounting differences
calculate valuation ratios such as EV/EBITDA

Since depreciation varies widely from company to company, EBITDA provides a more consistent way to compare operating results.

EBITDA Formulas

There are two common ways to calculate EBITDA:

From net income:

financial expenses (interest)
taxes
depreciation
amortization

From EBIT:

depreciation
amortization

EBITDA margin: EBITDA ÷ Revenue × 100

The EBITDA margin shows what percentage of revenue is converted into operating profit before depreciation and financing expenses.

Advantages of EBITDA

EBITDA is popular because it provides a clear picture of the strength of operations:

Measures operating profitability: A clear indicator of efficiency in the core business.
Comparability: Eliminates differences in taxes, financing, and depreciation.
Investment Assessment: Used by investors and lenders to assess repayment capacity and operational strength.
Valuation: Key financial ratios such as EV/EBITDA are based on EBITDA.

Limitations of EBITDA

Although EBITDA is useful, it also has clear limitations:

Not an audited figure: May be calculated differently from one company to another.
Excluding depreciation: Significant investments may be hidden in the figure.
Ignoring taxes and interest: Two key factors for a company’s actual survival.
May present an overly positive picture: Especially in capital-intensive companies with high depreciation expenses.

Therefore, EBITDA should always be evaluated in conjunction with other key financial ratios such as EBIT, cash flow, the debt-to-equity ratio, and the return on assets.

EBITDA in Practice

EBITDA is often used as:

measure of operational strength
benchmarking among companies
basis for valuation in acquisitions and investments
supplement to EBIT and net income

This key figure is well-suited for a quick financial screening, but should not be used in isolation.

EBITDA at Qatchr

In Qatchr, our credit platform, you can view operating income (EBIT) and accounting items such as depreciation and financial expenses, which together make it possible to calculate or understand a company’s EBITDA. The platform thus provides a solid foundation for analyzing the strength and performance of operations based on factual financial data.