FULL FORM OF EBITDA

FULL FORM OF EBITDA

The full form of EBITDA stand for Earning Before Interest Taxes Depreciation and Amortization. It is used to evaluate company's operating performance.

focuses on the operating decisions of a business because it looks a the business profitability from its core operation before the impact of leverage, capital structure and non cash items such as depreciation are taken into account.

EBITDA = Next income + Interest + Taxes + Depreciation + Amortization.

It can also be expressed as follows

EBITDA = Operating profit + Depreciation + Amortization

USES OF EBITDA

It is commonly used as a proxy for cash flow. It provide and analyst a quick estimate of the value of the company. In addition, when a company is not making profit, investors can evaluate company by EBITDA. This metric is very good for comparing similar companies in some industry. Business owners use it to compare their performance against there competitors.

DISADVANTAGE OF EBITDA

EBITDA show earning before Interest, Taxes, Depreciation and Amortization. The earning may be ambiguous. For example, a fast growing manufacturing company may present increased sales and EBITDA year over year. To expand there business it acquired many fixed assets over time and they may be funded with debt. Although it may appear that the company has strong topline growth investors and evaluators should look other metrics as well, such as capital expenditure, cash flow, and net income.