{"id":251094,"date":"2026-01-22T13:38:25","date_gmt":"2026-01-22T12:38:25","guid":{"rendered":"https:\/\/highgate.sk\/ebitda-what-it-means-how-it-is-calculated-and-when-it-is-introduced\/"},"modified":"2026-01-22T14:23:35","modified_gmt":"2026-01-22T13:23:35","slug":"ebitda-what-it-means-how-it-is-calculated-and-when-it-is-introduced","status":"publish","type":"post","link":"https:\/\/highgate.sk\/en\/ebitda-what-it-means-how-it-is-calculated-and-when-it-is-introduced\/","title":{"rendered":"EBITDA: what it means, how it is calculated and when it is introduced"},"content":{"rendered":"\n

EBITDA ( Earnings Before Interest, Taxes, Depreciation and Amortization<\/em>) is a measure that approximates a company’s operating performance before the impact of financing (interest), taxes and non-cash expenses (depreciation and amortization)<\/strong>. In practice, it is mainly used for quick comparisons of firms within an industry, in investment analyses and in business valuations (e.g. via EV\/EBITDA). <\/p>\n\n

Why EBITDA is important for companies and investors<\/h2>\n\n

Comparison of operational performance<\/h3>\n\n

EBITDA helps to compare companies without significantly affecting the result:<\/p>\n\n

    \n
  • amount of debt (interest),<\/li>\n\n\n\n
  • different tax environments,<\/li>\n\n\n\n
  • accounting depreciation (which is non-cash).<\/li>\n<\/ul>\n\n

    Frequent basis for valuing companies (EV\/EBITDA)<\/h3>\n\n

    For M&A and investments, an EV\/EBITDA<\/strong> (enterprise value\/EBITDA) multiple is often used to allow relative valuation comparisons between companies in the same sector.<\/p>\n\n

    What exactly EBITDA represents (and what it doesn’t)<\/h2>\n\n

    EBITDA is not cash flow.<\/strong>It is an income-cost ratio, which, although it excludes depreciation and amortization (non-cash items), still:<\/p>\n\n

      \n
    • ignores CAPEX<\/strong> (real investment in assets),<\/li>\n\n\n\n
    • does not take account of changes in working capital (inventories, accounts receivable, accounts payable),<\/li>\n\n\n\n
    • says nothing about repaying the debt.<\/li>\n<\/ul>\n\n
      <\/div>\n\n

      Therefore, it is always advisable to supplement EBITDA with other indicators (e.g. operating cash flow, free cash flow, net profit).<\/p>\n\n

      How EBITDA is calculated<\/h2>\n\n

      1) EBITDA from EBIT<\/h3>\n\n

      If you have EBIT (earnings before interest and tax), the calculation is:<\/p>\n\n

      EBITDA = EBIT + depreciation + amortisation (amortisation of intangible assets)<\/strong><\/p>\n\n

      <\/div>\n\n

      2) EBITDA from net profit<\/h3>\n\n

      If you are basing it on net profit (after tax), a simplification typically applies:<\/p>\n\n

      EBITDA = net profit + interest + taxes + depreciation + amortisation<\/strong><\/p>\n\n

      Note: in practice, care should be taken with exceptional\/unusual items and ‘adjusted’ definitions (e.g. adjusted EBITDA).<\/p>\n\n

      Practical example of EBITDA calculation<\/h2>\n\n

      Imagine a company with the following data:<\/p>\n\n

        \n
      • Net profit: 100 000 \u20ac<\/li>\n\n\n\n
      • Interest: \u20ac20 000<\/li>\n\n\n\n
      • Data: 15 000 \u20ac<\/li>\n\n\n\n
      • Depreciation: \u20ac 10 000<\/li>\n\n\n\n
      • Amortisation: \u20ac 5 000<\/li>\n<\/ul>\n\n
        <\/div>\n\n

        EBITDA = 100 000 + 20 000 + 15 000 + 10 000 + 5 000 = \u20ac 150 000<\/strong><\/p>\n\n

        EBITDA vs. EBIT vs. net profit<\/h2>\n\n
          \n
        • EBITDA<\/strong>: “earnings before interest, taxes, depreciation and amortization” – useful for comparing companies and quick screening.<\/li>\n\n\n\n
        • EBIT<\/strong>: earnings before interest and tax – already includes depreciation and amortisation, so it is more reflective of the “costliness” of assets.<\/li>\n\n\n\n
        • Net profit<\/strong>: the result after all costs – important for overall profitability, but affected by financing, taxes and accounting policies.<\/li>\n<\/ul>\n\n

          When EBITDA is useful (and when it can be misleading)<\/h2>\n\n

          EBITDA is useful when:<\/h3>\n\n
            \n
          • you are comparing companies in the same industry,<\/li>\n\n\n\n
          • you are assessing the ability to generate an operating result,<\/li>\n\n\n\n
          • you do the valuation via EV\/EBITDA,<\/li>\n\n\n\n
          • you are tracking debt through Debt\/EBITDA<\/strong>.<\/li>\n<\/ul>\n\n

            EBITDA can be misleading when:<\/h3>\n\n
              \n
            • the company has high CAPEX (production, energy, infrastructure),<\/li>\n\n\n\n
            • “Beautiful EBITDA” goes hand in hand with poor cash flow,<\/li>\n\n\n\n
            • The company presents Adjusted EBITDA<\/strong> and eliminates costs too aggressively (“one-off” items each year).<\/li>\n<\/ul>\n\n

              Most common ratios with EBITDA<\/h2>\n\n

              EV\/EBITDA (EBITDA multiple)<\/h3>\n\n

              Used in valuation: a lower multiple can mean a cheaper valuation (always in the context of the industry and risk).<\/p>\n\n

              Debt\/EBITDA (debt to EBITDA)<\/h3>\n\n

              It shows how many years it would take to pay off the debt if EBITDA were hypothetically used for repayments. The higher the value, the higher the risk. <\/p>\n\n

              FAQ: frequently asked questions about EBITDA<\/h2>\n\n

              1) Is EBITDA the same as profit?<\/h3>\n\n

              No. EBITDA is “before” interest, taxes, depreciation and amortization; net profit is after all expenses. <\/p>\n\n

              2) Why EBITDA is not cash flow?<\/h3>\n\n

              Because it does not take into account CAPEX, working capital or debt repayment.<\/p>\n\n

              3) What is EV\/EBITDA?<\/h3>\n\n

              The ratio of enterprise value to EBITDA, used in comparing firm valuations.<\/p>\n\n

              4) Is higher EBITDA always good?<\/h3>\n\n

              Not necessarily – CAPEX, debt, margins, earnings stability and cash flow are also critical.<\/p>\n\n

              5) What does “adjusted EBITDA” mean?<\/h3>\n\n

              EBITDA adjusted for selected items. It is useful, but one needs to check what exactly the company has “cleaned up”. <\/p>\n\n

              Conclusion<\/h2>\n\n

              EBITDA is a handy metric for quick comparison of operating performance and often serves as a basis for valuing companies (EV\/EBITDA) or assessing debt (Debt\/EBITDA). At the same time, it is not a measure of cash and can distort reality, particularly where there is a high level of investment in assets or where “adjusted” EBITDA is used. Therefore, always combine EBITDA with cash flow and other financial metrics to make a good decision. <\/p>\n\n

              <\/p>\n","protected":false},"excerpt":{"rendered":"

              EBITDA ( Earnings Before Interest, Taxes, Depreciation and Amortization) is a measure that approximates a company’s operating performance before the impact of financing (interest), taxes and non-cash expenses (depreciation and amortization). In practice, it is mainly used for quick comparisons of firms within an industry, in investment analyses and in business valuations (e.g. via EV\/EBITDA). […]<\/p>\n","protected":false},"author":7,"featured_media":251078,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[186],"tags":[],"class_list":["post-251094","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-quick-articles"],"_links":{"self":[{"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/posts\/251094","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/comments?post=251094"}],"version-history":[{"count":3,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/posts\/251094\/revisions"}],"predecessor-version":[{"id":251102,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/posts\/251094\/revisions\/251102"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/media\/251078"}],"wp:attachment":[{"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/media?parent=251094"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/categories?post=251094"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/highgate.sk\/en\/wp-json\/wp\/v2\/tags?post=251094"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}