EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization
EBITDA compares operating performance before interest, taxes, depreciation, and amortization.
What it means
EBITDA is a non-GAAP performance measure that adds back interest, taxes, depreciation, and amortization. It helps compare operating performance across capital structures and accounting profiles, but it is not cash flow, net income, or enterprise value itself.
How to calculate it
- Net income basis | EBITDA = Net income + interest + taxes + depreciation + amortization | Rebuild from bottom-line profit
- Operating income basis | EBITDA = Operating income + depreciation + amortization | Focus on operating performance
- Adjusted EBITDA should only be compared when adjustment items and reconciliation are documented.
What counts / what does not
| Item | Treatment | Why it matters |
|---|---|---|
| Include | Profit, interest, taxes, depreciation, and amortization for the same period and scope | Keeps the numerator auditable |
| Exclude | Capex, working-capital movement, principal repayment, timing of cash tax payments | EBITDA does not capture them |
What moves the number
| Driver | Metric impact | What to watch |
|---|---|---|
| Revenue quality | Price, volume, mix, renewal rate, one-time revenue | Separates durable improvement from temporary lift |
| Cost structure | Gross margin, people cost, support cost, operating leverage | Explains whether improvement scales |
| Adjustment policy | Add-backs such as one-time costs or stock-based compensation | Determines comparability |
When it helps
- Use it to compare operating performance across companies with different capital structures or tax rates.
- Use it as an initial comparison metric in M&A, lending, valuation, and budget reviews.
How to use it
- Fix the starting point, period, and adjustments, then reconcile to financial statements.
- Do not decide from EBITDA alone. Check it with operating income, free cash flow, and net income.
Decision cautions
- Ignoring capex and working capital can overstate cash generation.
- Adjusted EBITDA can be flexible, so each adjustment needs evidence.
Read with
| Metric | Role | Why read together |
|---|---|---|
| Free Cash Flow | Checks cash that remains | Prevents overreading EBITDA |
| EBITDA Margin | EBITDA as a percentage of revenue | Used for profitability comparison |
Example
Example: if operating income is 500 million yen, depreciation is 200 million yen, and amortization is 100 million yen, EBITDA on an operating-income basis is 800 million yen.
Compare with
| Metric | Difference | Why read together |
|---|---|---|
| Operating Income | Operating profit | EBITDA adds back depreciation and amortization |
| Cash Flow | Movement of cash | EBITDA does not directly show cash spending or working capital |
Common mistakes
- Using EBITDA as a cash-flow substitute hides capex and working-capital needs.
- Too many adjustments can make performance look better than the underlying business.
Frequently asked questions
Is EBITDA cash flow?
No. EBITDA is a comparison-oriented profit metric and does not directly include capex, working capital, or cash taxes.
Can adjusted EBITDA be trusted?
It is useful only when adjustments, evidence, and reconciliation to financial statements are explicit.
Sources
| Sources | Kind | Link |
|---|---|---|
| YogoQ Core business foundation editorial baseline | editorial | — |