EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortization. It’s a popular measure and is commonly used in various financial ratios to compare different companies. EBITDA provides a measure of the operating performance of a business. The general formula for calculating EBITDA is as follows:
EBITDA = Revenue − Expenses (excluding tax and interest, depreciation, and amortization)
It may also exclude other expenses such as stock-based compensation, foreign exchange gain (loss), and restructuring costs.
Even though, it’s extensively used as a measure of a firm’s ability to generate cash and service its debt, EBITDA is not a standardized measure under IFRS, which makes it difficult to compare across companies.
The following table shows a sample calculation of EBITDA.