EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This is a process that allows you to get a better idea of your company’s value and show investors or buyers its worth. By taking away the varying elements, investors and buyers are able to see the company’s performance and compare it to others.
Formula: EBITDA= Net Income + Interest + Taxes + Depreciation + Amortization
Interest differs between companies, as it depends on the financing and borrowed money that was/is needed for that business.
Taxes vary greatly by region and don’t have any affect on the actual performance of the company.
Depreciation & Amortization depend on the past investments the company has made that don’t affect their performance. Depreciation is use for tangible assets, while Amortization is used for intangible ones. A bulldozer for a construction company would be a tangible long-term asset, while a patent is intangible because it isn’t useful for a long time.
Here is an example of what a buyer would be looking at to determine which company is performing better.
While Company 1 has a higher EBITDA, Company 2 has a higher Net Income. Breaking down costs and profit will help you understand how well your business is performing.
The focus of our service is to help companies grow their EBITDA. We grow profits for businesses of all sizes.
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