What Is Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA)?

Patrick Curtis

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Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

EBITDA stands for Earnings Before Interest, Tax, Depreciation & Amortization and is one of the most commonly used indicators of the profitability of a firm.

The EBITDA calculation is Operating Income + Depreciation + Amoritzation + Stock-Based Compensation.

EBITDA is a popular metric used for comparing companies, particularly with an LBO. The most common multiple using EBITDA is:

The reason behind using EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) is because it allows you to see both the profitability of a firm excluding taxes and also because it shows the ability of the firm to service debt (hence its popularity in debt-financed buyouts) and that it is not affected by capital structure (i.e. debt payments).

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Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.