Small Business Resources > What is EBITDA?
What is EBITDA?
Definition of: EBITDA
Earnings before interest, taxes, depreciation and amortization or "EBITDA" is a measure of a company's cash flow before certain deductions. It allows investors to see how much money a company is making before taxes, depreciation and amortization have been deducted. When investors place money in a company, they will want to know how much money the company has been making since their money was invested. EBITDA gives the investor an idea of how much money the company has made before its deductions. It is especially useful for a new company who has just started and has not yet been hit with taxes, payments to creditors, and so on.
There are potential problems in using the EDITDA figure. The EBITDA leaves out of lot of expenses in the final figure, so it may not be a realistic view of a companyï¿½s profitability. It also does not measure the actual cash that is flowing into the company because of the figures that it leaves out.
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