EBITDA measures

Ever wonder how a company's profit looks without debt and taxes?

Imagine you're running a lemonade stand. You sell lots of lemonade and make a good profit, but you also have to pay for your stand's equipment (depreciation) and the cost of the lemons (amortization). You don't want to worry about interest on a loan you took to buy a fancy lemonade machine or taxes on your earnings.

Think of EBITDA as your lemonade stand's profit minus the cost of your fancy machine and lemons, but before you pay interest and taxes. It's like seeing how much money you really made without those extra costs and taxes.

Example

You sold 100 worth of lemonade. You spent 20 on lemons and 10 on your fancy machine. So, your EBITDA is 70 (100 - 20 - $10), showing you made that much profit without considering interest and taxes.

Remember this

EBITDA gives you a clearer picture of your business's true profitability by removing debt and tax impacts.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

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