EBITDA: Definition, Formula, and How to Calculate It

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability by showing earnings generated from core operations before the effects of financing decisions, tax regimes, and non-cash accounting charges. It is typically calculated by starting with operating income (or net income) and adding back interest, taxes, depreciation, and amortization. Investors commonly use EBITDA to compare operating performance across companies and industries because it removes differences in capital structure and tax treatment; however, it excludes capital expenditures, changes in working capital, and other cash outflows, so it should not be treated as a substitute for free cash flow or net income.