In accounting, what does EBITDA measure in a company’s reported performance?

In accounting, EBITDA measures earnings before interest, taxes, depreciation, and amortization.

The term is calculated by starting with net income and adding back interest, taxes, depreciation, and amortization, or by adding operating expenses to operating income while excluding depreciation and amortization. It is widely used to compare operating results across companies with different debt levels, tax situations, or asset bases.

EBITDA became especially prominent in leveraged-buyout analysis during the 1980s. Analysts used it as a rough indicator of operating earning power and as a basis for valuation multiples such as enterprise value to EBITDA.

EBITDA is not a standardized measure under generally accepted accounting principles, and it is not the same as cash flow. It ignores capital expenditures, changes in working capital, interest payments, and taxes. Critics therefore warn that a company can show strong EBITDA while still having substantial debt or large cash requirements. Adjusted EBITDA may also exclude company-selected items, so definitions should be checked carefully.